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LATEST NEWS UPDATES | MFIs want banks to create Rs 1,000-cr fund

MFIs want banks to create Rs 1,000-cr fund

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published Published on Nov 22, 2010   modified Modified on Nov 22, 2010

Faced with a liquidity crunch, microfinance companies have asked RBI to direct banks to set up an emergency fund of Rs 1,000 crore to help them tide over slowdown in their business.

Sources said the Microfinance Institution Network (MFIN) is trying to convince the central bank in this regard. The micro finance sector has been reeling under a liquidity crisis after the Andhra Pradesh government issued an ordinance to control interest rates charged by microfinance institutions (MFIs) and also to check the coercive recovery tactics adopted by these firms.

From time to time, RBI had helped various sectors to deal with the money shortage. At the time of global financial crisis, the central bank had announced special liquidity injection measures for the mutual fund industry when it was facing a cash shortage.

Sources said MFIN has had discussion with RBI seeking assistance. MFIN has requested the central bank to ask the Small Industries Development Bank of India (Sidbi) and public and private sector banks to extend the funding.

MFIs offer credit to the poor after sourcing the funding from banks. While banks lend to MFIs at 12-13%, MFIs in turn charge interest rates as high as 36%. MFIs say high interest rate is charged because the cost associated with lending in rural areas is too high.

The Andhra Pradesh ordinance on October 15 impacted the collections of MFIs. The country’s only listed microfinance company SKS said its collection for November had come down and in future could affect its profitability.

Last Friday, finance minister Pranab Mukherjee had said the Centre did not intend to strangulate the microfinance sector.

“My idea is not to strangulate them (the microfinance institutions), but to regulate them so that the interest they charge is not exorbitant and the method of realisation, under no circumstances, should be quick,” he had said.


The Economic Times, 22 November, 2010, http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/finance/MFIs-want-banks-to-create-Rs-1000-cr-fund/articleshow/6967411.cms


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