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Sa-Dhan Patrika

Volume 6

Issue 1

Sa- Dhan's Mission Statement

Sa-Dhan's mission is to build the field of Community Development Finance Institutions, help

members and associate institutions in rendering better services to low income households,

particularly women, both in rural and urban India, in their quest for establishing a stable

livelihood for improving their quality of life

Microfinance in Budget 2005

(Excerpts from the budget speech delivered by Mr. P Chidambaram, Finance Minister of India, on 28th

February 2005)

Micro Finance

The programme of linking Self Help Groups (SHGs) with the banking system has emerged as the major

micro-finance programme in the country. 560 banks including 48 commercial banks, 196 RRBs and 316

cooperative banks are now actively involved in the programme. I propose to enhance the target for

credit-linking in the next fiscal from 2 lakh SHGs to 2.5 lakh SHGs.

At present, micro finance institutions (MFIs) obtain finance from banks according to guidelines issued

by RBI. MFIs seek to provide small scale credit and other financial services to low income households

and small informal businesses. Government intends to promote MFIs in a big way. The way forward, I

believe, is to identify MFIs, classify and rate such institutions, and empower them to intermediate

between the lending banks and the beneficiaries. Commercial banks may appoint MFIs as "banking

correspondents" to provide transaction services on their behalf. Since MFIs require infusion of new

capital, I propose to re-designate the existing Rs.100 crore Micro Finance Development Fund as the

"Micro Finance Development and Equity Fund", and increase the corpus to Rs.200 crore. The fund will

be managed by a Board consisting of representatives of NABARD, commercial banks and professionals

with domain knowledge. The Board will be asked to suggest suitable legislation, and I expect to

introduce a draft Bill in the next fiscal year.

I propose to request RBI to open a window to enable qualified NGOs engaged in micro-finance activities

to use the External Commercial Borrowing (ECB) window. Detailed guidelines containing necessary

safeguards will be issued by RBI.

Micro Insurance

The benefits of opening the insurance sector are now visible by way of vast improvement in insurance

penetration and insurance density, and the availability of a wide variety of products. Government

would like to see these benefits percolate to rural India and to the vulnerable sections of the population.

Micro insurance is a distinct product. Its design and delivery are specialized functions. The Insurance

Regulatory Development Authority (IRDA) has published draft Regulations for micro insurance. NGOs,

SHGs, cooperatives and MFIs will be invited to become micro insurance agents. Government will

extend full support to the effort of IRDA to promote micro insurance.

Please Rush Book Post to

Sa-Dhan Microfinance Resource Centre

12 & 13, 2nd Floor Special Institutional Area, Shaheed Jeet Singh Marg, New Delhi 110067

T el 91 11 55650787, 26518276

Fax 91 11 26518276  Email info@sa-dhan.org  web www.sa-dhan.org