Raise capital requirement for MFIs to Rs 25 lakh: Assocham

Industry chamber Assocham today suggested that the minimum capital requirement for setting up of micro-finance institutions (MFIs) should be raised to Rs 25 lakh from Rs 5 lakh to encourage the entry of serious players in the sector.

"The minimum capital requirement for MFIs should be raised to at least Rs 25 lakh backed with a strong technology intervention for adequate reporting, supervision and regulation," Assocham said in a statement.

MFI sector is facing problems in getting bank credit lines amid allegations of high-handedness in recovering loans from their clients and non-professionalism.

Assocham said the Micro Finance Institutions (Development and Regulation) Bill, 2011, which is awaiting Parliament approval, has pegged the minimum capital requirement at Rs 5 lakh initially.

"This should be raised so that weaker and smaller players are discouraged," Assocham said.

The RBI should spell out minimum benchmarks for healthy growth of MFIs so that fund flow from banks could increase substantially, it said.

"The RBI can delegate regulatory powers with respect to any class of MFI to an independent agency like Nabard which has the knowledge and understanding of their development needs," Assocham Secretary General DS Rawat said.

Assocham said the proposed micro finance development council to address grievances of various stakeholders should have representations from industry bodies.

The financial needs of MFIs are estimated at $200 billion in the long-term, it said.