25
Scaling Up in Microfinance - Issues and Challenges
participants. The three-pronged proposal
Amaro Luiz De Olivera Gomes of Central
for the provision of micro-insurance
Bank of Brazil gave an overview of the
includes: adapting insurance companies
e f f o r t s undertaken by the Bank in
t o the requirements of the micro-
coordination with the government
economy, linking them as wholesale
towards increasing the scope of financial
institutions to SHGs, and upgrading SHGs
services in Brazil. The concentration of the
as financial cooperatives. If these
main banks in urban areas targeting rich
strategies are resorted to, these informal
clients had resulted in the rest of the
institutions can be of great help in
population having limited access to
r e d u c i n g the demand-supply gap
them. This is currently being rectified
amidst the poor for micro-insurance, he
through banking correspondents. Efforts
observed.
are on towards enhancing the number
of simplified accounts developed to
Vijay Mahajan of BASIX, argued that
handle social security payments. The
unless a framework emerges by which
directives to the banks to divert at least
fivesixth of the Indian population is given
2 per cent of the demand deposits to
access to savings deposits, people from
the microcredit sector, monitoring of all
the poorer sections would continue to
activities and operations of not only the
lose amounts to fly-by-night operators.
financial institutions but also NGOs by
Unfortunately, the formal banking system
the National Monetary Council, are all
has been a failure in this regard. In fact,
bringing forth dynamic changes in the
the poor are in desperate need for
Brazilian financial system, he observed.
composite financial services, which
Technical Session III
ought to be delivered through a single
Governance
and
Prudential
window arrangement, STEMS (Single
Norms
Terminal Enabled Multiple Services), for
the facilitation of which he suggests that
The third Technical Session with its focus
the power of the microprocessor should
on `Governance and Prudential Norms',
be integrated with the demand for
chaired by Ranjana Kumar, NABARD,
mF. He suggested that the minimum
witnessed speakers making specific
Foreign Investment Promotion Board
suggestions towards improving the
(FIPB) limit to the contribution to equity
governance structures and adopting the
be reduced from $500,000 to $50,000. The
best practices in vogue in the rest of the
mF sector is currently under a multiple
world. A Vikraman of SIDBI, observed that
regulator syndrome, which needs to be
the specific strength of the mF sector was
corrected with a single regulator, so that
its expertise in developmental activities.
transaction costs are reduced and better
But, he cautioned the organisations
against the founder syndrome, in which
access to composite financial services is
made available.
the emergence of new leadership poses
a threat, and the solution to which lies in
Presenting a model legislation towards
professionalisation. Strengthening of
the regulation of mFIs was M R Umarji,
external audit arrangements and
Chief Legal Advisor, IBA. He argued that
capacity building at the institutional level
The mF sector is
the regulatory structure in place for the
would go a long way in achieving better
currently under a
banks and the Non Banking Finance
efficiency, he concluded.
multiple regulator
Companies (NBFCs), based on Basel
syndrome , which
norms and prudential norms would be
Sanjay Sinha of M-CRIL, brought with
needs to be
least suited for the sector. He made a
him the experience of the international
corrected with a
case for an independent regulator.
credit rating of mFIs. Explaining the
single regulator,
Under the Indian legal framework, it is
methodology undertaken by M-CRIL, he
so that transaction
obligatory to adopt the structure of a
reminded the audience that less than
costs are reduced
company registered under the
40 mFIs in the country were in a desirable
and better access
Companies Act in order to access public
state of rating. Interestingly, the outreach
to composite
d e p o s i t s . The proposed legislation
to the clients of these A type institutions is
financial services
adapts the structure of Trust for mFIs. In
the highest. He argued that it is on the
is made available
the model legislation, he classifies the
basis of the Asian experience that the
institutions into two categories:
entry barrier of Rs 2 crore for registering as
microfinance entities (mFEs) and mFIs.
an NBFC is being opposed. Concluding
Only when an mFE crossed the limit of
his remarks, he observed that the Sa-
100 lakh would it get transformed into an
Dhan initiative had not been towards
mFI, with a higher level of surveillance
watering down minimum prudential
and monitoring. Various checks and
norms, but for bringing down minimum
balances would take care of the
capital requirements.
plausible misuse of the legislation by
undesirable elements.
