MFI sector urges RBI backing for emergency credit support

#GS3 #Economy

  • Reeling under the impact of the second wave of the pandemic, the microfinance sector has reached out to the Reserve Bank of India (RBI) for support, including an emergency credit line and creating awareness among State governments on the ill effects of loan waivers.
  • It also sought a special liquidity facility of at least ₹15,000 crores through NABARD and SIDBI.
  • It also recommended the introduction of a Partial Credit Guarantee Scheme 3.0 as it may help boost the confidence of banks in the ‘present uncertain times’ to lend to the microfinance sector, especially small and mid-size MFIs with relatively lower credit ratings.

MFIs

  • Microfinance Institutions, also known as MFIs, a microfinance institution is an organisation that offers financial services to low-income populations.
  • Usually, their area of operations of extending small loans are rural areas and among low-income people in urban areas. 
  • MFIs provide the much-needed aid to the economically underprivileged who would have otherwise been at the mercy of the local moneylender and high interest rates.
  • The model had its genesis as a poverty alleviation tool, focused on economic and social upliftment of the marginalised sections through the lending of small amounts of money without any collateral to women for income-generating activities. 
  • MFI loan portfolio has reached Rs 2.31 lakh crore at the end of FY2020, touching the lives of 5.89 crore customers.
  • Some of the MFIs, that qualify certain criteria and are non-deposit taking entities, come under RBI wings for Non-Banking Financial Company (NBFC) Regulation and supervision. These “Last Mile Financiers” are known as NBFC MFI.
  • The objective of covering them under RBI was to make these NBFC MFIs healthy and accountable. 
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