Microfinance and The State:: Exploring New Areas and Structures of Collaboration
Microfinance and The State:: Exploring New Areas and Structures of Collaboration
Microfinance and The State:: Exploring New Areas and Structures of Collaboration
M S Sriram
Commercial Banks
Improvement in priority sector lending - but
growth seen in “other” priority sectors, marginal
growth in agriculture
Targets set for weaker sections not achieved by a
small margin in public sector banks. The
achievements of private sector banks nowhere
near targets
NPAs in priority sector at 20%, while overall
NPAs around 12%
Part II: Performance of the mainstream sector
Co-operatives
State Co-op Banks - performance improving but
high level of NPAs 17%
The performance of lower tiers is Worse - a third
of the CCBs are making losses. Overall level of
NPAs is 33%
The performance of PACS is nowhere near
desirable. Capital adequacy a problem in both
CCBs and PACSs
LT Credit structure is in extended state of
sickness
Part I: The Present
Part II: Performance of the mainstream sector
Channels
implement schemes through own agencies
route schemes through banks
route schemes through NGOs
Co llecto r/ D is tr ic t M a g is trate Sc h e m e s o f th e G o ve rn m e n t: S c h e m e s o f th e
(a p p o inte d b y the s tate go v t) im ple m e n te d d ire c tly b y s tate Go ve rn m en t: Ro u te d to
p erc e ive d as “g iv in g a wa y ” lev el a g en c ie s e . g . D RD A , D P IP ba n ks a nd f in an cia l
p ro j ects (la rg e ly (m a n n ed b y b u rea u c ra ts ), th e in s titu tio ns .
in fra s tru c tu re ) to th e villa ge s ele cte d re p re s en ta tive n o t
p e rce ive d to h av e a “ s ay ”.
Sc h e m e s ro u te d
B e ne f iciar ies d ire ctly th ro u g h a n NG O –
id e nt if ie d a n d p r ov ide d u s in g th e lin kag e
a cces s to th e “s ch e m e s ” p ro b ra m m e typ e of
arr an g e m e nts .
Part IV: New Areas for involvement of the State
Direct Involvement
Given the dynamics it would become more and
more difficult for the state to directly involve itself
in this sector in an effective manner
State agencies are not oriented to implement
aspects relating to financial services in a
sustainable and profit-oriented manner
However the state can still earmark resources to
ensure that it is delivered by professional agencies
in an effective manner
Part IV: New Areas for involvement of the State
Incentivisation Regulation
Earmark resources in a • Create a legal framework so
manner that commercial that NGO promoted
banks explore microfinance institutions can
collaborations and work effectively. Recognise
involve themselves in that microfinance is much
channeling resources to beyond SHGs.
the poor. Lessons from • Ensure that entry barriers
the structuring of returns are minimal for loan
on RIDF investments can companies and increase
be used. restrictions as sophistication
of services increase.
Part IV: New Areas for involvement of the State
Incentivisation Regulation
Set up a risk incentive fund • Create scope for an
for mainstream intermediary level financial
institutions. institution with lower capital
Design the fund to requirements and have
increase target areas such phased capital requirements
as - increase in number of for additional services to be
small borrowal accounts, offered.
increase in penetration to • Provide for membership based
weaker sections financial service organisations
Reward on the basis of to function under the
overall recovery companies act (like the
performance producers companies)
Part IV: New Areas for involvement of the State
Interrospection Regulation
Allow for better usage of • Harmonise the working of
existing infrastructure - RRBs and sponsor banks.
primary co-ops, bank • Allow for change of ownership
branches in rural areas - of RRBs, Merger of RRBs with
if they could be managed each other for cross
strategically in subsidisation, risk mitigation
collaboration with private and economies of scale - with
sector or NGOs, the proviso that outreach will
not be compromised
leveraging of
infrastructure and • Permission for closure of loss
outreach is possible making RRB branches to be
examined very carefully.
Summary