FM rules out tax sops for micro-finance bodies

Ruling out tax benefits for micro-finance institutions, Finance Minister P Chidambaram today sought detailed proposals on giving recognition to these bodies, their regulatory needs and the creation of a development fund.

Chidambaram asked the Small Industrial Development Bank of India (Sidbi) and Sa-dhan, an industry association, to submit their proposals by the first week of February.

Speaking to reporters on the sidelines of a conference organised by Sidbi and Sa-dhan, he said the government was close to finalising a banking sector roadmap. He also said he would be attending the meeting of finance ministers of G7 countries in London on February 4.

"Give me your recommendations. I promise total support to the work being done here," Chidambaram said in his address at the conference.

Emphasising the need for spreading micro-finance, the minister said: "We must strengthen self help groups. MFIs can help in rating SHGs as banks are not equipped for it."

"We will look into the setting up of a development fund for micro-finance," he said. With over 40,000 bank branches in the country, the banking network has failed in providing the poor access to finance.

The banks are required to hold only 25 per cent of their demand and time deposits in statutory liquidity ratio (SLR) but they hold 40 per cent. So, while lendable resources exist, they have to be disbursed.

"A large amount, 15 per cent of banks' demand and time deposits, is not used and MFIs can make a difference in delivering credit to the poor," the minister said. Chidambaram said the government would make funds available and that it would expand agricultural credit by 30 per cent every year. The student loans will be also be increased, he said.

Giving his initial thoughts on the suggestions put forward, he said the sector should not look for tax breaks and concessions.

On the need for accepting deposits, Chidambaram said: "My initial thoughts are that there is no compelling reason for MFIs to accept deposits but if needed, only mature MFIs could be considered for this."

He asked the participants to be cautious when asking for a regulator for MFIs as this sector needed minimum regulation.

Sidbi and Sa-dhan have proposed a new law for micro-finance organisations, and asked for a separate development and regulatory authority and an ability to offer credit as well as deposit facilities at the grassroots level.