MFIs – Malegam Report ………..(1)

Most of us would be aware that RBI had set-up a committee under the chairmanship of Shri YH Malegam. The Committee has submitted its report. Starting today, major contents of the report including the recommendations would be shared with the SRRF Dialogue e-group. Comments in bold are recommendations.

MFI Institutions

MFIs have been classified in the sector into three main groups:

§          SHG-Bank Linkage model – 58% of the outstanding loan portfolio. Mainly working with SHG model.

§          NBFCs – 34%. Typically working with Joint Liability Groups (JLG). This a group, where loans are given to individual members of JLG only. However main difference is that generally each loan given is jointly and severally guaranteed by all the members of JLG.

§          Others including trusts, societies, etc – balance 8%

The above does not cover primary agricultural coop societies as well as Thrift & Credit societies.

Recommendation

A separate category be created for NBFCs operating in the MFI sector – could be designated as NBFC-MFI.

The above category not to include S.25 companies, thus in effect it appears that Malegam recommendations are to cover for-profit MFIs.

A company will not be designated as NBFC-MFI, unless 90% of its assets (other than cash, bank & Money Market instruments) constitute MFI loans.

Conditions for a loan to be qualified as an MFI loan:

§          Borrower should be a member of a household whose annual income is not more than Rs 50,000.

§          Loan amount should not exceed Rs 25,000. Total indebtedness at the time of giving loan, including the current loan should not exceed Rs 25,000. Tenure of Loan should not be less than 12 months, if loan amount is upto Rs 15,000 and in other cases (i.e. above Rs 15,000) tenure of loan not less than 24 months. This is to keep the loan instalment within the borrower’s repayment capacity.

§          No charges for prepayment of loan by the borrower.

§          No collateral to be taken against loan. This is to ensure that borrower who has meagre resources does not loose his possessions in case of default.

§          Repayable on weekly, fortnightly or monthly basis at the choice of the borrower.

…………to be cont’d

Also do initiate your comments / queries to further broaden the understanding of the developments in the sector.