- NBFC & MFI in India
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A Non Banking Financial Company (NBFC) is [1]a company registered under the Companies Act, 1956 of India, engaged in the business of loans and advances, acquisition of shares, stock, bondsire-purchase, insurance business, or chit business: but does not include any institution whose principal business is that includes agriculture or industrial activity; or the sale, purchase or construction of immovable property.[2]
Contents
Difference between NBFCs & Banks
NBFCs perform functions similar to that of banks; however there are a few differences in that an NBFC cannot accept demand deposits; an NBFC is not a part of the payment and settlement system and as such, an NBFC cannot issue cheques drawn on itself; and deposit insurance facility of the Deposit Insurance and Credit Guarantee Corporation is not available for NBFC depositors, unlike banks.
MFI
Microfinance institutions, also known as MFIs[3], offer financial services to underprivileged and impoverished communities.
MFIs go for NBFC licences
An Increasing number of microfinance institutions (MFIs) are seeking non-banking finance company (NBFC) status from RBI to get wide access to funding, including bank finance.[4]
Exemptions granted to NBFCs engaged in microfinance activities
The Task Force on Supportive Policy and Regulatory Framework for Microfinance setup by NABARD in 1999 provided various recommendations. Accordingly, it was decided to exempt NBFCs which are engaged in micro financing activities, licensed under Section 25 of the Companies Act, 1956, and which do not accept public deposits, from the purview of Sections 45-IA (registration), 45-IB (maintenance of liquid assets) and 45-IC (transfer of profits to the Reserve Fund) of the RBI Act, 1934.[5]
MFIs & SHG-Bank linkage programme
In a joint fact-finding study on microfinance conducted by the Reserve Bank of India and a few major banks, the following observations were made:
- Some of the microfinance institutions (MFIs) financed by banks or acting as their intermediaries or partners appear to be focusing on relatively better banked areas, including areas covered by the SHG-Bank linkage programme. Competing MFIs were operating in the same area, and trying to reach out to the same set of poor, resulting in multiple lending and overburdening of rural households.
- Many MFIs supported by banks were not engaging themselves in capacity building and empowerment of the groups to the desired extent. The MFIs were disbursing loans to the newly formed groups within 10–15 days of their formation, in contrast to the practice
obtaining in the SHG – Bank linkage programme, which takes about six to seven months for group formation and nurturing. As a result, cohesiveness and a sense of purpose were not being built up in the groups formed by these MFIs.
- Banks, as principal financiers of MFIs, do not appear to be engaging them with regard to their systems, practices and lending policies with a view to ensuring better transparency and adherence to best practices. In many cases, no review of MFI operations were undertaken after sanctioning the credit facility.[6]
RBI relaxes norms for NBFCs
NBFCs registered with the Reserve Bank of India may take part in the insurance agency business on a fee basis and without risk participation or the need to seek the bank's approval.
In a notification issued, the RBI said such NBFCs should obtain permission from the Insurance Regulatory and Development Authority and comply with IRDA regulations for acting as a "composite corporate agent" with insurance companies.[7][8]
MFIs of India
Forbes magazine named seven microfinance institutes in India in the list of the world's top 50 microfinance institutions.
Bandhan, as well as two other Indian MFIs—Microcredit Foundation of India (ranked 13th) and Saadhana Microfin Society (15th) – have been placed above Bangladesh-based Grameen Bank (which along with its founder Mohammed Yunus, was awarded the Nobel Prize). Besides Bandhan, the Microcredit Foundation of India and Saadhana Microfin Society, other Indian entries include Grameen Koota (19th), Sharada's Women's Association for Weaker Section (23rd), SKS Microfinance Private Ltd (44th) and Asmitha Microfin Ltd (29th).[9][10]
Criticisms
Recently, microfinance has come under fire in the state of Andhra Pradesh due to allegations of MFIs using coercive recollection practices and charging usurious interest rates. [11] These charges resulted in the state government's passing of the Andhra Pradesh Microfinance Ordinance on October 15, 2010. The Ordinance requires MFIs to register with the state government and gives the state government the power, suo moto, to shut down MFI activity. [12] A number of NBFCs have been affected by the ordinance, including sector heavyweight SKS Microfinance. [13]
References
- ^ http://acronyms.thefreedictionary.com/NBFC
- ^ http://www.rediff.com/money/2007/jul/20nbfc.htm
- ^ http://acronyms.thefreedictionary.com/MFI
- ^ http://economictimes.indiatimes.com/News/News_By_Industry/Finance__Insurance/Finance/MFIs_go_for_NBFC_licences_for_better_access_to_funds/articleshow/988065.cms
- ^ http://rbi.org.in/scripts/NotificationUser.aspx?Id=3651&Mode=0
- ^ http://rbi.org.in/scripts/NotificationUser.aspx?Id=3175&Mode=0
- ^ http://www.hindu.com/2004/02/12/stories/2004021203031600.htm
- ^ http://rbi.org.in/scripts/NotificationUser.aspx?Id=1481&Mode=0
- ^ http://www.forbes.com/2007/12/20/microfinance-philanthropy-credit-biz-cz_ms_1220microfinance_table.html
- ^ http://timesofindia.indiatimes.com/articleshow/2653281.cms
- ^ http://indiamicrofinance.com/andhra-mfi-suicide-972532.html
- ^ http://indiamicrofinance.com/download-andhra-microfinance-ordinance-908172.html
- ^ http://in.reuters.com/article/idINIndia-52994520101118
Categories:- Financial institutions
- Financial services companies of India
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