Micro Credit and Micro Finance Institutions

What is Micro credit?

Micro credit relates to extending thrift, credit and other financial services to underprivileged and weaker sections of the society. Micro credit is being extended by banks, NGOs, RRBs and MFIs

Micro Finance Institution is a financial intermediary connecting financial institutions and the rural poor
RBI has left the interest rate and type of products for Micro credit, to the banks to decide. Micro credit covers not only consumption and production loans for various farm and non-farm activities of the poor but also include their other credit needs such as housing and shelter improvements.

What are the other initiatives made by GOI for developing micro credit?

Micro Credit and Micro Finance Institutions

Govt. of India vide their notification dated August 29, 2000 have included Micro Credit/Rural Credit in the list of permitted non-banking financial company (NBFC) activities for being considered for Foreign Direct Investment (FDI)/ Overseas Corporate Bodies (OCB)/Non-Resident Indians (NRI) investment to encourage foreign participation in micro credit projects. This covers credit facility at micro level for providing finance to small producers and small micro enterprises in rural and urban areas. Micro credit beneficiaries need, not only financial assistance, but a more comprehensive assistance covering design development Technology marketing To ensure that this assistance is provided NABARD has created a Micro Finance Development Fund with objective as over.

Micro Credit and Micro Finance Institutions

(a) giving training and exposure to self-help group (SHG) members, partner NGOs, banks and govt. agencies; (b) providing start-up funds to micro finance institutions and meeting their initial operational deficits; (c) meeting the cost of formation and nurturing of SHGs; (d) designing new delivery mechanisms; and (e) promoting research, action research, management information systems and dissemination of best practices in micro finance. This Fund is thus expected to address institutional and delivery issues like institutional growth and transformation, governance, accessing new sources of funding, building institutional capacity and increasing volumes. RBI and NABARD have contributed Rs. 40 crore each to this Fund. The balance Rs. 20 crore were contributed by 11 public sector banks.

Micro Credit and Micro Finance Institutions

Relaxation has been made in External Commercial Borrowing (ECB) policy of GOI to enable MFIs to raise foreign currency funding Purpose For lending to self-help groups or for micro-credit or for bonafide micro finance activity including capacity building by NGOs engaged in micro finance activities Limit allowed Up to $ 5 million Passing of MSME Development Act 2006 Earlier there were only SMEs (Small and Medium Enterprises). To include micro enterprises also, this Act was passed. This Act makes it obligatory for the companies who are sourcing materials from Micro and Small Enterprises, to pay their dues within 15 days. Any delay beyond 15 days is to be compensated with penal interest of 3 times the bank rate What are the norms for classification of units as micro, small and medium enterprises?

Micro Credit and Micro Finance Institutions

engaged in service activities manufacturing investment in equipments and production activities investment in plant and machinery Micro Enterprise Small Enterprises up to Rs25.00lacs above Rs25.00lacs up to Rs5.00cr up to Rs10.00lacs above Rs10.00lacs up to Rs2.00cr above Rs2.00cr up to Rs5.00cr

Medium Enterprises above Rs5.00cr up to Rs10.00cr