Short note on Microfinance Institutions Bill (2011) India

A Amarender Reddy, Senior Researcher, Bankers Institute of Rural Development, India; anugu.amarender.reddy@gmail.com

Unregulated growth of microfinance institutions

The microfinance industry is growing at a faster rate in recent years with about 62% per annum in terms of numbers of borrowers and 88% per annum in terms of credit over the past five years. India had the world’s largest microfinance market by number of borrowers, at 2.56 crore, and ranked fourth in terms of loan portfolio (Rs20,000 crores) as on March 2010. It exceeds the number of borrower accounts served by the Regional Rural Banks by as much as 50% and represents 40% of the total number of micro-borrower accounts (of value less than Rs25,000) in the entire Indian financial system. This represents more than 10% of the total number of 22 crore families in the country and about 15% of the 60% of the population that is thought to be financially excluded (Micro Credit Rating International Ltd, 2010). The microfinance penetration in India is merely 3.6%, and 60% of the portfolio is concentrated in the southern states of Andhra Pradesh, Tamil Nadu and Karnataka. The Indian microfinance industry (MFI) would cross 11 crore borrowers and Rs135,000 crore in loan portfolio by 2014 and will require a huge capital inflow both in debt and equity, according to a latest report by Intellecap (2010). The proposed new Micro Finance Bill (2011) came at the right time, which suggested a single regulator as it gives more clarity and uniform rules to all MFIs functioning across states. MFIs provide financial services to poor women and low income households, who are excluded by formal financial institutions and at the mercy of the money lenders. They are playing important role in the financial inclusion plan of government of India. The growth of microfinance is much faster after the entry of private MFIs, whose role cannot be underplay.