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RBI tells Banks to continue lending to microfinance sector
Submitted by mfadmin on Wed, 12/22/2010 - 19:36
Microfinance Focus, December 22, 2010: In a meeting that was held in Mumbai today, the Reserve Bank of India (RBI) has asked bankers to continue lending to microfinance institutions as it is an important sector for the growth of the country, a bank official told Microfinance Focus.
During the meet, banks proposed consortium financing for the sector and discussed issues of over-indebtedness, high interest rates and lending practices of microfinance institutions.
Under consortium financing, several banks (or financial institutions) finance a single borrower with common appraisal, common documentation, joint supervision and follow-up exercises, these banks have a common agreement between them.
Banks lending to microfinance institutions declined sharply post promulgation of Andhra Pradesh microfinance ordinance in October. Bankers are keenly awaiting RBI’s Malegam Committee report on the sector which is expected to come by mid January.
The RBI suggestions can be viewed as a positive move to address the pressing concern of liquidity crisis which is impairing the microfinance sector.