Date:21/01/2005 URL: http://www.thehindubusinessline.com/2005/01/21/stories/2005012101830600.htm

Back Enough resources with banks, no need for foreign equity' — Be intermediaries, Govt tells micro-finance institutions

Our Bureau

The Finance Minister, Mr. P. Chidambaram, leaving after addressing a meeting on MFIs in the Capital on Thursday. - - Kamal Narang

New Delhi , Jan. 20

THE Finance Minister, Mr P. Chidambaram, on Thursday advised micro-finance institutions (MFIs) to take up intermediation between banks and self-help groups (SHGs) rather than looking to avail themselves of tax concessions or access foreign equity/debt funds.

Addressing a SIDBI Sa-Dhan conference on Regulatory Framework for MFIs here, Mr Chidambaram said that access to foreign equity and changes in tax laws are ideas that should be put in backburner.

"I do not see any compelling arguments for MFIs to become credit institutions and accept deposits. There is enough lendable resources with banks. What is lacking is proper intermediation. You must examine whether intermediation could be your predominant role," the Finance Minister said.

He held that MFIs should generally desist from accepting deposits.

Stating that the United Progressive Alliance Government is deeply committed to strengthen the SHG and micro-finance movement, Mr Chidambaram asked Sa-Dhan and others in the micro-finance sector to spell out the purpose of a micro-finance fund, whose creation is being advocated by several MFIs.

"I am not ruling out the setting up of a fund. If necessary, we can set up a micro-finance fund," Mr Chidamabaram said.

On the suggestion of Sa-Dhan Chairperson, Ms Ila Bhatt, that there should be a Micro-Finance Development and Regulatory Authority, Mr Chidambaram said that he supported this idea with "great degree of caution".

`We are already an overregulated society. Some regulations may be necessary. It's my opinion that MFIs that do not take deposit need not be regulated".

"But MFIs taking deposits may require some regulation— not very heavy-handed regulation but loose regulation to give them space to grow," he said.

The Finance Minister was also keen to know whether MFIs would agree to get themselves credit rated so that better rated MFIs could be allowed to access more funds.

Mr Chidambaram felt that over time many successful micro-finance institutions should be allowed access to equity and debt.

"I have reservations in allowing them now to access equity or debt funds. We must have a roadmap for access to equity, debt and deposits," he said.