Page 36 - Banking Finance December 2022

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should not be more than 50 per cent of the household quantum of credit made available to the micro finance
income. To avid harsh recovery which is observed when the customers. As on March end, 2020, there were as many as
borrower is unable to repay his loan due to several external 187 lending institutions which provided micro finance
reasons, the Framework insists on all other lending amounting to Rs. to 2.27 lakh cores. Among the lending
institutions to extend the collateral free nature of micro institutions, the share of SCBs and NBFC-MFIs in the total
finance loans as observed in NBFC-MFIs. micro finance is more than 70 per cent . And, more than
half of the total micro finance is provided in five states
More importantly, it defines NBFC- MFI as a non-deposit including Tamil Nadu, Bihar, West Bengal, Karnataka and
taking NBFC whose minimum Net Owned Funds should be Maharastra. Lending institutions also provide indirect
of Rs.5 crores and, in the North Eastern Region, the same finance to Self Help Groups (SHGs) and Joint Liability Groups
should be Rs 2 crores. In the same way, micro finance loan (JLBs) for on lending which are known for micro financing.
is also defined as a collateral-free loan given to a household
having annual household income up to Rs.3 lakhs. Regarding In this regard, the NABARD document entitled," Status of
prudential norms, all new NBFC-MFIs should maintain a Micro Finance in India 2021-22", shares the latest data
capital adequacy ratio, consisting of Tier I and Tier II capital, relating to the SBLP which now covers more than 119 lakh
of not be less than 15 percent of the aggregate risk weighted SHG groups and 14 crore families. These SHGs mobilized
assets. And, the total of Tier II capital at any point of time, cumulative savings of Rs. 47,240 crores as on March end,
should not exceed 100 percent of Tier I capital. All other 2022. The credit linkage is also impressive when 34 lakh
provisions of the prudential norms of Non Deposit taking SHGs have been credit linked during 2021-22 as against 29
NBFC are also applicable to NBFC-MFIs. lakh groups in 2020-21.

Further, all NBFC-MFIs should maintain an aggregate margin Further, micro loans worth Rs. 99,729 crores were disbursed.
cap of not more than 12 percent and, interest on individual The loan outstanding as on 31 March, 2022 stood at
loans should not exceed 26 percent per annum, calculated 1,51,051 crores provided to 67.40 lakh SHGs with an
on a reducing balance basis. Processing charges should not average loan amount of Rs.2.24 lakh per SHG. In addition,
be more than 1 percent of gross loan amount. Further, there a total of 188 lakh JLGs were formed and credit linked and,
should be fair practices in lending by observing transparency cumulative loan disbursed to JLGs remained impressive with
in interest rates and avoiding multiple-lending, over- Rs. 3,25,937 crores as on 31 March, 2022. Despite
borrowing and ghost-borrowers. More importantly, they impressive performance SHGs and JLGs, there are challenges
should adopt non- coercive methods of recovery. Having by way of a huge credit gap being as high as 43 per cent
micro finance being well regulated, it is worth examining and, regional disparities still exist.
its performance.
In this context, banks are expected to open more and more
Performance Review:
In India, micro finance is provided by various lending
institutions viz., scheduled commercial banks (SCBs), regional
rural banks (RRBs), cooperative banks, non-banking financial
companies (NBFCs), small finance banks (SFBs) and micro
finance institutions (MFIs). Among these, registered MFIs as
NBFCs, called NBFC-MFIs, seem to be more active in
providing micro finance. As per the Report on Trend and
Progress of Banking in India 2021-22, Reserve Bank of India,
MFIs operate in 570 districts of 29 States and Union
Territories.

Indian micro finance sector has witnessed phenomenal
growth over the years in terms of increase in both number
of lending institutions providing micro finance as also the

36 | 2023 | JANUARY | BANKING FINANCE