| Finance minister P Chidambaram in the budget speech had said that commercial banks may appoint MFIs as "banking correspondents" to provide transaction services on their behalf. |
| "The committee constituted by the Reserve Bank of India (RBI) is likely to suggest that MFIs should be permitted to sanction loans and provide remittance services at much cheaper cost in the rural areas," said banking sources. |
| "The right to sanction loans will increase the outreach of banks and also boost the flow of credit to rural areas," said the managing director of a leading MFI. |
| At present, MFIs "" under the banking correspondent arrangement "" market financial products and services of bank. |
| "Banks would like to strengthen banking correspondent tie-ups, however, there is a need to assess the financial health of these institutions," said banking sources. |
| To address this issue, National Bank for Agriculture and Rural Development (Nabard) has initiated a programme of rating MFIs. Under this programme ,75 per cent of the rating cost is borne by Nabard and 25 per cent by the MFIs. |
| In a related development, in accordance with the budget announcement, the Micro Finance Development and Equity Fund board is being reconstituted. |
| The reconstituted board will consist of 12 members against nine members now. The board will have representatives of Nabard, RBI, public sector banks and the government. |
| Of the Rs 100 crore corpus of the fund, only Rs 8 crore has been used over a period of one year, said banking sources. |
| The finance minister had increased the corpus of the fund from Rs 100 crore to Rs 200 crore in the current financial year. |
| The additional Rs 100 crore will be funded by Nabard, RBI and select public sector banks, said banking sources. |
| The board will frame broad guidelines for the sector and also suggest suitable legislation for the sector and improve management and accounting practices. |
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