Page 38 - Banking Finance December 2022

ARTICLE

Towards this end, RBI has taken certain initiatives. To direct finance to small borrowers and also indirect finance
elaborate, it has scaled up the Centre for Financial Literacy to SHGs, NBFC-MFIs and JLGs for on-lending. While financing
(CFL) project by establishing 1,107 Centres for Financial SHGs by banks and NBFCs, women could become owners of
Literacy, besides helping in the inclusion of financial assets, have an increased say in decision making and lead
education in the school curriculum. It is also planning to dignified lives. In the coming days, the focus of lending
strengthen the eco-system for digital financial services that institutions would be on digital micro finance to broaden
will support provision of the last mile access and expand the their client outreach to reduce concentration risk.
bouquet of financial products at affordable cost with ease
of use. Similarly, to reduce operational and profit margin in But micro finance sector experiences certain concerns such
micro lending, technology has a key role to play to reduce as lack of due diligence in lending, over-indebtedness of the
operational cost. borrowers and forced recoveries. Hence, RBI came out with
a regulatory framework for NBFC-MFIs in 2011 for the first
It is also observed that microfinance lenders, who are early time which was revised subsequently.
adopters of technology, are using customer data for various
purposes including designing tailored financial products, The present RBI regulatory framework covers eligibility
automating the processes for customer on-boarding, criteria for micro finance loans, transparency in interest
improving the credit monitoring process by getting early charges, methods of recovery, measures to contain multiple
warning signs of stress in loan portfolio and enabling digital lending and over-indebtedness, minimum capital adequacy
modes of loan and other payments. A few FinTechs are also ratio, disclosure of interest etc. In addition, Small Industrial
designing apps that are vernacular and aid customer Development Bank of India (SIDBI) provides a hand holding
interaction through voice and chat conversations, thereby support to lending institutions regarding credit scoring
making them customer friendly, intuitive and easy to use. methods, predicting probability of default, hosting an
But, the challenge before lenders is to make micro finance ecosystem and, creating an infrastructure to reduce the
activity more technology based, which calls for initial huge turnaround time and provide customer-centric products with
investment. robust risk mitigation.

Hence, many micro finance lenders have already started Due these initiatives, both the number of lending
entering into partnership with FinTech firms for delivery of institutions providing micro finance and amount of credit
services and sourcing of customers on line. While the use of have grown up considerably. But, during the pandemic,
technology is encouraged, the customer protection is growth in lending to SHGs, MFIs and JLGs for on-lending to
another challenge for lending institutions. During the micro borrowers suffered, and, therefore, RBI initiated
pandemic, there was loss of livelihoods and hardships, calling further steps by announcing rescheduling of payments,
for a push towards financial inclusion and micro credit for conversion of interest accrued into another credit facility,
vulnerable and disadvantaged sections of the society who enhancement in working capital limit etc. Fortunately,
were worst affected. Hence, the major challenge before during the post pandemic, there has been a good pick up in
micro finance is to take care of financial needs of poor the economy.
people and small enterprises by providing them adequate,
timely and hassle free credit during post pandemic. The In the coming years, there will be enough business
other tasks before micro institutions include revamping of opportunities for the micro finance sector. For this purpose,
the risk management systems, improving the skills of the there is a need to make micro finance more digital, promote
field level staff and institution of an effective grievance financial literacy, strengthen risk management systems, up-
redressal system. grade skills of the field level staff and install an effective
grievance redressal system. When lending institutions will
Conclusion: move in this direction, they shall remain more friendly to
Towards promotion of financial inclusion in the country, the society at large and assist in stepping up inclusive
banks and NBFCs assume an important role in providing growth in the country.

38 | 2023 | JANUARY | BANKING FINANCE