DFI association to prepare paper on micro-finance

VK Chakravarti

Ahmedabad, Nov 5: The newly formed Indian Association of Development Finance Institutions, comprising the country's 20 leading micro-finance practitioners and specialists, will meet Reserve Bank of India (RBI) governor Bimal Jalan, top bankers and senior government officers here on November 6 to prepare a `Vision for Micro-finance in India -- 2005'.

The association was promoted by Women's World Banking (WWB) during a workshop held in New Delhi in the first week of August with the twin objectives of building India's leadership in the field of micro-finance and identifying key areas of actions for financiers and policy-makers.

Top leaders of the WWB, including its founder-member and outgoing chairperson Ela Bhatt and president Nancy Barry, who were in the city in connection with the just concluded 10th biennial global forum of WWB, are also scheduled to attend the Friday meeting.

These leaders will discuss the draft consensus report which suggests:

Increasing the number of micro-financeinstitutions (MFIs) at wholesale and retail levels because financial institutions (FIs) like Nabard, Sidbi and Hudco have made a good beginning but could only reach the first stage of MFIs, ie, non-government organisations (NGOs) and self-help groups (SHGs).

Interest rate ceilings on micro (up to Rs 25,000) and small loans (up to Rs 2 lakh) should be removed as poor people want access and not subsidy.

Modifying various acts to allow apex bodies to finance MFIs as part of their regular operation and not merely as a `promotional activity'.

Setting up a high powered task force on micro-finance comprising members from ministry of finance, DEA, CBDT, RBI, banks, FIs and MFIs.

Adopting a progressive co-operative act by the centre on the lines of APMACS Act, 1995, to allow genuine member control and free the co-operatives from government control and political interference.

Amending Section 36 (l)(viii) of Income Tax Act to include MFIs as eligible for 40 per cent tax rebate if theamount is set apart in a reserve, at present available to only housing finance companies.

Amending Section 2(15) of Income Tax Act to include micro-finance as a charitable activity, and to allow non-profits to be invested in the equity capital of for-profit MFIs.

It is estimated that hardly 2 per cent of 500 million potential low-income entrepreneurs in the world (including 60 million in India) have so far been covered by formal banking and financial institutions. It has also been proved from past experience in India and abroad that 97 per cent of poor loanees promptly repay the loans.

Finance minister Yashwant Sinha had, in this year's budget speech, proposed to enhance the credit through SHGs. GoI has asked Nabard to promote and finance 2 lakh SHGs in rural areas over the next five years to cover 4 million poor.

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