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| Nabard favours more regulations for MFIs |
| BS Reporter / Kolkata Jul 30, 2010, 00:37 IST |
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In view of the high rates of interest charged by micro-finance institutions (MFIs), the National Bank for Agriculture and Rural Development (Nabard) is in favour of a stringent regulatory framework for the sector. However, the bank does not favour putting a cap on the rates charged by MFIs.
 Nabard had taken up the matter with the government and the regulators concerned, Nabard Chairman U C Sarangi said on the sidelines of a Ficci banking conclave here on Thursday.
“It is time MFIs reduce their interest rates, particularly if the MFI movement is to continue,” he said.
Sarangi said according to a recent study, top five MFIs in the country reported an average return on assets of about 4.3 per cent, as against about 1.7 per cent globally.
“We have discussed the matter with the regulators concerned. We do not want to prescribe a cap on interest rates, but we want more regulations in the industry,” said Sarangi.
While the operating expense ratio of MFI’s has come down to about 11 per cent, the yield on advances has been as high as 33 per cent.
Thus, margins were as high as 20 per cent for most MFIs, said Sarangi, adding that interest rates up to 25 per cent on an annual basis was the acceptable limit for MFIs.
RBI has also expressed concerns over high rates charged by MFIs.
Recently, SKS became the first MFI to hit the capital market through an initial public offer.
Sarangi said self-help groups were a better alternative to MFIs, as the profits were plouged back for disbursing fresh loans.
In this regard, Nabard has started pilot projects in five districts in Tamil Nadu through tie-ups with post offices to reach out to village-level entrepreneurs through self-help groups.
Nabard has set aside Rs 3 crore for this.
This year, Nabard plans to disburse about Rs 40,000 crore as farm loans, including short and long-term loans, as against Rs 36,000 crore last financial year.
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