Beginning a long-anticipated series of moves to shake up the banking sector, the Reserve Bank last week gave 'in-principle' approval to eight commercial micro-lenders to upgrade themselves into small fince banks. The RBI had issued guidelines for licensing 'small fince banks' on November 27 last year. For the small fince banks category, it received a total 72 applications. Two microfince institutions from Assam were among the applicants, mely Asomi Fince Private Ltd and RGVN (North East) Microfince Ltd. The RBI has now granted a total 10 licenses in the first round, with RGVN making the cut. The successful ten institutions have been chosen on their ability to raise money for the initial capital requirements, after the RBI thorughly scrutinised their proposed business plans. With players like Ujjivan and Equitas from Cheni, Jalakshmi from Bengaluru, Disha from Ahmedabad, Utkarsh from Varasi and Suryoday from Mumbai, the expectation is that all these institutions will function as a new type of bank that will broaden access to fincial services at the lower end of the market. The RBI considered their potential to 'reach into unbanked areas and under-served sections of the population', to serve as part of the ongoing effort in the country towards fincial inclusion. Thus it is that microfince companies are now being roped into the formal banking system, with PSU banks mostly ignoring small entrepreneurs and businesses.
Supported by public and private banks, microfince companies have been lending a helping hand to self-help groups (SHGs), joint liability groups (JLGs) as well as individual entrepreneurs, with women being the major beneficiaries. Small seed money with low rates of interest are being advanced to help them set up tea stalls and eateries, looms and poultry farms, tailoring shops and handicraft stalls. According to official figures, fifty profit-making micro-lenders between themselves had a combined loan portfolio of some Rs 42,000 crores to around 3.1 crore borrowers, with an average loan size of Rs 17,800 rupees. It is because of their relatively smaller capital requirements as well as lack of collateral and formal documentation, that such borrowers have failed to draw the attention of major banks --- with many falling into the hands of loan sharks or unscrupulous fincing groups. The selected micro-fince companies will get 18 months to raise the necessary capital and comply with RBI requirements, particularly in focusing their attention on small loans. However, for Assam and other NE states, microfince as a tool for socio-economic uplift in backward rural and interior areas, still has miles to go. The road and rail infrastructure in the region is still a slow work in progress, the terrain is rugged and population in the hills thinly distributed. This means that SHGs that could be spread over several kilometres. Banks are comparatively few, and not adequately manned. Then there are traditiol as well as informal systems of collecting savings and lending money for business or persol needs, which have not figured in the radar of banks and microfince companies active in the region. While RGVN Microfince getting the RBI's license is good news for this region, other micro-fince institutions here need to scale up in similar fashion to rid the Northeast of its fincial exclusion.