'New MFIs should enter unbanked regions'

More microfinance institutions (MFIs) should be encouraged to enter the microfinance sector to reach out to the vast populace of unbanked mass in the country.

Also, fund flows to microfinance institutions should be adequate to meet the funding requirements of this industry.

“New MFIs should be encouraged to enter into unbanked areas of the country as it will help in achieving ‘financial inclusion’,” Dilip Modi, president of The Associated Chambers of Commerce and Industry of India (Assocham) said here attending a seminar on MFIs here.

He also said that fund flow to the sector should be adequate in order to sustain this kind of business model.

MFIs in the country are facing severe cash crunch as banks are reluctant to lend to this industry after repayment difficulties faced by some players post- Andhra Pradesh ordinance. Even, Malegam Committee recommendation and subsequent policy action by Reserve Bank of India has not changed the situation yet.

Meantime, some MFI loans have been recently restructured by banks in order to ease repayment pressure.

“I hope that banks will be able to filter functioning of various MFIs and will lend them accordingly. Bank lending to this sector should improve given the fact that MFIs are crucial part of financial inclusion initiatives,” he said.

He also said it would be too early to predict a consolidation in the MFI industry post-Malegam recommendations.

As per Assocham, the microfinance industry has a Rs 30,000 crore of outstanding loans of 30 million borrowers as of now. The industry size in Karnataka stands at Rs 2,000 crore, which is growing at a sound pace.

“The total number of clients of microfinance has reached 3.2 million apart from the 3 million clients from 232,000 self help groups (SHGs) in Karnataka.

However, this kind of growth is taking place in a better developed and densely populated region of the state. So, I urge MFIs to explore the unexplored regions of the state,” Murugesh R Nirani, minister of industries of Karnataka, said.

He also asked MFIs to maintain close contacts with local administration to make microfinancing more productive and development oriented.

Karnataka should also encourage SHG group-based lending to increase repayments from clients, he added.