Malegam panel suggests creation of NBFC-MFIs for micro lending

20 Jan 2011

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An RBI panel has recommended creation of a separate category of NBFCs operating in the micro finance sector to be designated as NBFC-MFIs.

To qualify as NBFC-MFI, the NBFC should be "a company which provides financial services mainly to low-income borrowers, with loans of small amounts, for short-terms, on unsecured basis, mainly for income-generating activities, the sub-committee said in its report.

The sub-committee, headed by Y H Malegam, a senior member on the RBI's central board of directors, also suggested repayment schedules that are more frequent than those normally stipulated by commercial banks and which further satisfies the specified MFI regulations.

Besides, the committee said, such NBFC-MFI will hold not less than 90 per cent of its total assets (other than cash and bank balances and money market instruments) in the form of qualifying assets.

To be eligible for micro finance loans, the committee has suggested an annual family income ceiling of Rs50,000 and a Rs25,000 ceiling on loans to a single borrower.

Not less than 75 per cent of the loans given by MFIs should be for income-generating purposes and there is restriction on other services to be provided by the MFI. These restrictions, however, are based on the type of service and the maximum percentage of total income as may be prescribed.

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