Financial Inclusion:1.

FARMER: Out of 89 million farmer household in the country, 51% did not credit facilities from institutional sources. (NSS-2003) 2. DRI: Only 0.4% has been sanctioned as advance or borrowed Rs. 3,100 (2011). The card which enables small outstanding is

3. General Purpose Credit Card:

borrower to withdraw family account up to the limit of Rs. 25,000 is issued in small number. Only 1.5 lakh Cards (2009). 4. No Frill Accounts: November, 2005. 5. Branch Expansion: accounts are dormant. Branch expansion is not taking place in rural areas. In 2005-06 not a single rural branch was opened. In 2007-08, 1% of branch was not in rural areas. In 2008-09, 13% of branches at rural areas. viability. 6. BC: Can BCs be efficient / effective? Getting committed in BCs is difficult. The best performing SHG may be acquainted as BC. 7. Insurance: How to provide insurance to 40 crore people who live on less than Rs. 30 per day. Malegam Committee Recommendation: The NBFC-MFI must hold at least 90 percent of its total assets (other than cash and bank balances and money market instruments) in the form of qualifying assets (assets meeting RBI stipulations). Borrowers household annual income should not increase INR 50,00 0 and the borrower can borrow only up to INR 25,000. Not less than 75 percent of the loans given by the MFI should be for income generating purposes. With regards to the interest rate chargeable to the borrowers a cap of 24 percent interest on individual loans has been recommended. RRBs are merging their rural branches for the sake of 5 crore accounts have been opened since Balance outstanding is 5,300 crores. Many

MFI should lend to an individual borrower only as a member of a Joint Liability Group (JLG). Borrower can not be a member of more than one SHG/JLG. Recoveries should be made at the group level at a designated public place. MFIs should have a proper Code of Conduct for the field staff. With respect to Priority Sector Lending status the bank lending to NBFCs which qualify as NBFC-MFIs, will be entitled to Priority Lending status.

The responsibility to ensure compliance with the regulations should be shared amongst MFIs, banks, industry associations and Reserve Bank.

RBI has increased interest rate cap to 26%. Borrower can borrow up to 35,000 in the 1st cycle and 50,000 in subsequent cycles. MFIs have Problems: a. Unable to tap capital market. b. Cap on interest rate and margin may makes smaller MFIs unviable. c. Ensuring 75% of loan for income generation activities would be difficult, presently it is 25%. d. MFIs are dependent on foreign capital. This has strong parallel with the sub-prime market. Similarities are i) ii) iii) iv) v) Focus on business opportunities to the undeserved High interest rate Product innovation without assessment of effectiveness Application of technology to accelerate growth in an impersonal manner A robust legal-regulatory mechanism will ensure that they do not do predatory lending.