Grameen extends guarantee for MFIs to ensure bank finance
DHAKA: Grameen Foundation, a not-for-profit organization based in the US, and two of its affiliates have set up an $8 million (Rs.36.2 crore) fund to offer guarantees on behalf of microfinance institutions (MFIs) looking for bank funding. The objective is to instil confidence in Indian banks to lend to MFIs.
Banks have stopped funding MFIs, particularly those that are operating in Andhra Pradesh, as their collection rate has dropped dramatically following an ordinance passed by the state government in October. The ordinance has now become a law with the government passing it early last week. This prohibits MFIs from charging interest that exceeds repayment of principal and resorting to coercive loan recovery practices.
"The group will make available $8 million in guarantee funds that it expects to generate a minimum of $16 million in local-currency financing to poverty-focused MFIs from local banks," said a statement issued by Grameen Foundation, along with its affiliates Grameen Capital India and Grameen-Jameel Microfinance Ltd on Monday.
However, both bankers and some micro credit lenders expressed doubt whether banks would accept such collateral to lend to MFIs.
"We need to see what is the efficacy of this guarantee and whether we are allowed to lend against this. This may help in giving comfort to MFIs," said M. Narendra, chairman and managing director of Indian Overseas Bank. "At the moment, our focus is to directly lend more to self-help groups, which operate in compliance with the rules. Even for MFIs, if they come with genuine proposals and do not opt for aggressive methods for loan recovery, banks will look into their proposal." - PB News
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