The microfinance industry wants n the government to provide additional funding and support, particularly for smaller microfinance institutions (MFIs) with portfolios below Rs 1,000 crore, in the Union Budget.
Industry players emphasise the need to upgrade many non-governmental organizations (NGOs) and development institutions into MFIs by providing adequate capital and enhancing their management, systems, processes, and human resources. To support this transformation, a fund of approximately Rs 250 crore could be established within development finance institutions like Nabard to infuse equity into these NGOs.
The industry has proposed the creation of a guarantee fund, managed by the National Credit Guarantee Trustee Company (NCGTC) of the Small Industries Development Bank of India (Sidbi), to cover the borrowing of MFIs from banks and financial institutions. An initial allocation of Rs 1,000 crore is suggested for this purpose.
Refinance facility
The industry suggests establishing a dedicated refinance facility of Rs 30,000 crore under the aegis of Sidbi or the National Bank for Agriculture and Rural Development (Nabard). This facility would provide on-lending to NBFC-MFIs at a lower cost, thereby boosting their lending capabilities.
Despite the improvement in the portfolio at risk (PAR) for over 30 days, which dropped to 3.4% as of March 31 from 3.9% a year ago, the unrest in Manipur has disrupted the functioning of MFIs in the state. This has affected borrowers’ ability to repay loans, leading to defaults by MFIs and hindering their capacity to raise funds for further lending. To address this issue, the government could consider extending long-term interest-free loans to MFIs in Manipur or creating a dedicated fund at the North Eastern Development Finance Corporation.
Tax holiday benefit
In addition, the industry suggests that the government reintroduce the ‘100 Percent Tax Holiday’ benefit, previously available under Section 80-IBA of the Finance Act, 2016, to incentivize developers to build more affordable housing projects. This move is expected to provide significant tax relief on profits earned from developing and building affordable housing, thereby encouraging more developers to undertake such projects.
According to recent data from the Microfinance Institutions Network (MFIN), the assets under management of microfinance institutions grew by nearly 30% year-on-year, reaching almost Rs 1.6 trillion as of March 31. Microfinance-focused non-banking financial companies dominate the market, holding a portfolio share of around 39%.
