mfm regulation ppt final

8/3/2019 MFM Regulation Ppt Final

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Akrishta Ritu (03)

Ankit Shrivastava (07)Ansuman Rath (09)

Chandrashekhar Mishra (13)

Dhiraj Bhagat (17)

Harihar Dubey (20)

Sunil S. Gandewar (52)Tripti Agarwal (54)

Vibhuti Bahuguna (56)


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Regulation of microfinance: very technical

and complex issue

National andsocietal context

Interest ofDifferent

stakeholders

maintainingsoundness of

financial sectorsprotecting savings

expanding accessto financing


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NEED FORREGULATION

VULNERABLEBORROWERS

ADVERSEEFFECT ONSHG-BANKLINKAGE

IMPORTANTPLANK IN

FINANCIALINCLUSION

75% OF THEFINANCE

COMES FROMBANKS AND

FIs

TO PROVIDESPECIAL

FACILITIES OR

DISPENSATION


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Clause Implication Risk/ benefits

1 Interest rate to be mentioned inbold & loan securitization null &void

Clarity of loan conditionsNo extra burden on loantaker

On MFI industrywhich earlier gavehuge loan on basis ofsecurity

2 Maintaining the accounts &producing them on requirement &submission of monthly statements

Done in a particular formatAudit at regular intervalbrings credibility

Increased cost of MFIFear of cancellation ofregistration

3 Registration of MFI under newordinance by registration authority.

Given a time of 30 days & forrenewal of registration 60 daysbefore expiry.

Operations allowed once theyregister

Verifications & audits carriedout by them

Have to follow everyclause for functioning

4 Complaints regarding violation oflaw can be filed & penalty awardedto MFI

Customers too can fill in thecomplaint

MFI industry have tobe more vigilantCustomers will get

total value for money5 Fats track courts (3 months) Dispute settlement faster &

less cumbersomeBenefit on part of boththe customers as wellas MFI industry

6 Proper format to enter the datafollowed

For ease in analysisstandardized format to be

followed for data entry

Benefits to both MFIindustry as well as

customers7 Power to make changes, giving Role of state government very MFI at the mercy of


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A company which provides

financial services to low-income borrowers

loans of small amounts

for short-terms, on unsecured basis

for income-generating activities

repayment schedules more frequent than those

normally stipulated by commercial banks


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Not less than 90% of its total assets are in the nature ofqualifying assets.

The income it derives from other services is in accordance withthe regulation specified in that behalf.

Annual income


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MFIs may need organisational restructuring to comply with the NBFC-MFI criteria

The higher minimum capital requirement may lead to some consolidation in the industry,reducing the total number of NBFC-MFIs.

Restrictions on the total loan size of Rs. 25000 may not fulfil the entire financing requirement ofindividual borrowers, thus forcing them to look at alternate avenues for funding

Lower growth prospects

Following conditions could reduce the operational difficulties for entities

operating in AP

NBFC-MFIs should be exempted from the provisions of the Money-Lenders Acts, specially as interest margin caps and increased regulation hasbeen introduced.

Simpler operating procedures than those specified in the AP Micro FinanceInstitutions


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Margin cap of 10% (over cost of funds) for MFIs with asset

base of greater than Rs 100 Crore

12% cap for MFIs with asset base of less than Rs. 100 Crore

A cap of 24% on lending yield

Processing fee, not exceeding 1% of the gross loan amount

All these factors will affect the ROE ofMFI


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Loan card for each member in local language

Adequate regulations for insurance premium computation &

collection

Security deposits already collected should be returned.

There should be a standard form of loan agreement.

Though all these factors will create brand imageof MFI in borrowers.

In order to bring all these in operation MFI hasto do some training program which will incur

cost.


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Lending guidelines

Stricter eligibility criteria for borrowers

could bring down the MFI sectorsgrowth rate

Lending toindividualborrower

Member of onlyone SHG/JLG

>2 MFI can notlend to same

borrower

Moratoriumperiod

Sanctioning andDisbursement atcentral location

Credit information BureausOne or more

can beestablished

All MFI will be

member of one ofit

Provide Informationabout history of

borrower

Delay in lendingprocess

But op. eff. Will beincreased


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Multiplelending andover lending

Sa-Dhan has at thenational level an Ethical

Grievance RedressalCommittee

All the above measures will help MFI to have somestandard recovery procedure which will help it in

achieving better recovery rates and also in building

brand

No recovery atpublic places. It

should be done atgroup level

Establish Propergrievance Redressal

procedure

It should bediscouraged by

MFI

Coercive methods of recovery

Peer pressure asan Collateral is

of no useLow recoveryrate


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MFIs can only function effectively in a proper business

environment.

If there is non-payment without collateral, itwill the cash flow of the MFI will suffer

Extending loan without collateral

This will hamper the emergence & growth ofsmall MFIs who are operational in remotelocations

All NBFC-MFIs should have aminimum Net Worth of Rs.15 crores

The governance of the organization shouldremain with the organisation. RBI shouldn'tinterfere with the functions as this will leadto chaos within the organization

The Reserve Bank should have thepower to remove from office the CEO

The power to deregister an MFI andprevent it from operating in the

microfinance sector


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No MFI can function without obtaining certificateof registration from the Reserve Bank under thisAct.

All registered NBFC providing micro financeservices shall also need to be registered under thisAct.

Will comply with guidelines of both NBFCs andMFIs of RBI under this Act

Risk: dual guidelines will increase the complexityof operations


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Every MFI registered should create a reserve fundbefore any dividend is declared or surplus is utilized

Any appropriation of any sum should be as specifiedby RBI and should be reported to it

The RBI may, in the interest of clients direct any MFI to

invest the whole or part of such reserve fund inunencumbered securities, as per regulations.

Risk: MFI will have lesser control over the use of its

reserve fund.


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Directions by RBI Risk

Extent of deployment of assets andproportion of clients availing MFIservices , necessary to classify any

MFI.

Ceiling on amount of financialassistance and the number ofindividual clients.

Tenure of financial assistance givento clients and other terms such aspurpose for which financial assistancecan be given, margin caps andperiodicity of repayment schedules.

Levy of processing fees, interest, lifeinsurance premium and other termsrelating to financial assistance and thepercentage of margin to be maintainedby a MFI.

Lower flexibility in MFI operations asper the need of the client


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Directions by RBI Risk

Specify the maximum AnnualPercentage Rate that can be charged by aMFI on the financial assistance granted toany client.

Sustainability issue due to low ticket sizeand high volume transaction incur highcost to MFI

Specify the locations where financialassistance may be sanctioned anddisbursed by micro finance institutions

Hamper profitability and reach

Require micro finance institutions tobecome members of Credit InformationBureaus that may be set up for the MicroFinance Sector

Permanent exclusion of defaulters fromthe system and qualitative factors willnot be considered

Specify the minimum net-worth of

micro finance institutions consideringtheir size of operations and other relevantparameters

Increase the entry barrier for new and

small MFIs and only established playerscan sustain

Specify prudential norms relating toincome recognition, accountingstandards, provisioning for bad and

doubtful debts, capital adequacy basedon risk wei hts for assets and

Due to the different clientele and capacityof MFI it is hard to fulfil stringentprudential norms


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MicrofinanceDevelopment

Fund

FinancialAssistance/

Grants

Training &CapacityBuilding

Expensesrelated toregulation

Expenses

ofpromoting

MFIs


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Miscellaneous

Regulations

Special Powersto the CentralGovernment

over RBI Provision ofthe act to

override otherlaws

Grievances &Penalties

RBIs power tomake

regulations onits own

Approval fromthe Parliament

Transparency

& Resyrictions

Delay in the proceedingsMisuse of power by the Central Government and RBIChances of conflict between RBI and central governmentSpecial law, which would over ride other previous lawsAppointing Micro Finance Ombudsmen- Decentralised and Efficientworking

Restrictions on Joint Ventures and Mergers & AcquisitionsInspection of the books of accounts ensuring transparency


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AP government took action without waiting for the RBI to act

The RBI with the Malegam report in hand, is waiting for the microfinance Bill

Product and process innovation will be discouraged due to restriction

Competition will be reduced as well-capitalized institutions will be favored

Too many regulations will defer the actual MFI mission of reaching the poorest

of the poor and will limit the growth

Sector is different from normalbank portfolios because of the micro-lending

methodology hence regulation restrict inclusion

Many MFIs are delivering on their mission of financial inclusion & regulation

will constrict their ability to continue to do this.


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Push self regulation in MFI

Capacity Building or development and mentoring from banking

institutions

Establishment of independent regulatory authority like IRDA, TRAI etc.

Saving mobilization should be encouraged to decrease dependability

from external source

Create MFI fund to support social intermediation

Microloans are not conventionally collateralized and should not be over

burdened with high provision

There should be balance between external and internal governance


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mfm regulation ppt final

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