E Kumar Sharma
Triggered by concerns over lack of access to funds and the need for a uniformity in the regulatory structure for the Indian microfinance sector, the expectation is that finance minister Pranab Mukherjee will do more than just announce a timeframe for the passage of the Microfinance bill.
While not everyone is comfortable with the Microfinance Bill in its current form, there is hope that it will get an early nod from the Parliament. Reason: it will help sort out a major hurdle on the regulatory front - it will lay out a clear regulatory role for the Reserve Bank of India (RBI), clearing up some of the lack of uniformity in regulation and enabling closer monitoring of the sector. Such a provision will ensure that state governments do not intervene (as was the case in Andhra Pradesh in 2010).
In a bid to address both the regulatory and the fund issue, some microfinance practitioners in the country say they feel it may be appropriate to create an entity like the National Housing Bank (NHB) for the microfinance sector. The NHB plays the role of both a regulator and a developer in the housing sector. It provides refinance and is also a wholly owned subsidiary of the RBI. There could be a similar entity for microfinance sector which could, apart from the regulatory role, also be involved in refinancing so that there is better fund access for MFIs with loans for onward lending to micro-borrowers.
The budget could also correct an anomaly in the treatment of provisions for non-performing assets (NPAs). Typically, the provisions made by banks for NPAs are tax deductable. But this deduction does not apply for non-banking finance companies (NBFCs) and therefore not to MFIs. Some in the sector would like to see this difference corrected.
Also, the Union budget last year increased allocations for a new entity, the Microfinance Development and Equity Fund, an entity created in the previous budget. However, this has apparently not had any major impact on the sector and the finance minister might take measures to review its operations and perhaps push it to do more lending.
Finally, the budget always mentions Self Help Groups and the SHG movement, often announcing greater allocations for this area. Given the way the sector and some of the SHGs have performed, the thrust will here will likely be on ensuring more outreach but also on quality and impact and better monitoring of the funds deployed here.