Call for broader policy framework for MFIs

Besides stressing the need for evolving broader policy contours for micro finance activities, the stakeholders of the emerging sector called for measures to empower rural clientele in productive utilisation of borrowings.

A round-table conference on 'micro finance- governance and regulation', organised by the Indian Institute of Economics and Academy of Corporate Governance here on Saturday, touched upon several issues that required to be addressed to see the nascent micro finance activity evolving into a major socio-economic intervention and a viable business opportunity.

Terming resolution of the conflict of interest between service provider and the customer as crucial to achieve sustainability and outreach in micro financing, B Yerram Raju, director of Indian Institute of Economics, said that micro finance institutions (MFIs) should refine their approaches towards this.

"The issue of higher service costs and the ability of absorption of these costs by poor borrowers are the major problems MFIs are facing. Accessing low-cost funds and adopting cost-effective tools is a solution to this," he said.

P Vijayakumar, general manager "� rural planning and credit department (RPCD), Reserve Bank of India, said there was a need for a policy framework on low-cost products as interest rates in MFIs was the primary issue.

He said training the clientele in evolving their capacities to promote income-generating activities was as important as providing credit. He also said MFIs should not resort to short-term gains such as burdening the borrower by giving loan after loan.

K Muralidhar Rao, general manager, Nabard (micro finance investment), said the interest rates could not be left to the market forces as the poor borrower would find it impossible to generate 50 per cent return on the investment to pay 24 per cent interest being charged by certain MFIs.

The Centre's capital and equity support and subsidy to meet the operational costs were required to sustain the micro financing in the country, he felt.

Representatives of various NGOs and MFIs also called for broader policy framework and need for training the clientele in alternative livelihoods.