The National Bank for Agriculture and Rural Development (Nabard) would target smaller microfinance institutions (MFIs) and put a cap of 25 per cent interest rate once the YH Malegam committee report is out, said KG Karmakar, managing director, Nabard.
“MFIs are only growing in over-banked areas. We want to focus more on these poverty-ridden areas, where the banking sector is not very strong. We are working out on a proposal to put a cap on interest rate at 25 per cent but would allow up to 30 per cent in some places like hilly and small poverty-ridden areas,” he said on the sidelines of a bankers’ zonal workshop here.
Nabard is awaiting the Malegam Committee report which is expected to come out by December. Nabard has been proposed as the regulator for MFIs in the proposed Microfinance (Development and Regulation) Bill.
The committee was recently set up by the Reserve Bank of India to probe the way MFIs function. The panel will study the issues and concerns in the sector, including ways and means of making interest rates charged by them reasonable.
Meanwhile, Nabard is also experimenting projects for developing microfinance through joint liability groups. It is now trying to spread the microfinance model in 13 states -- from the Bimaru states (Bihar, Madhya Pradesh, Rajasthan, Uttar Pradesh) to the eastern and northeastern regions.
Nabard’s current microfinance development and equity fund takes care of both the MFI sector and the SHG-bank linkage programmes. “The SHG bank linkage programme has taken a backstage for about three-four years, with a limited annual average growth of about 30 per cent. Whereas, the growth rate in the MFI sector is about 80 per cent,” he said.
Its initial equity for the microfinance development and equity fund was Rs 100 crore and it increased it to Rs 200 crore in 2004-05. Currently, it has increased to Rs 265 crore.