Short note on The hindu editorial. (Helps in Essay and CSAT co | UPSC - Disha Publication

Short note on The hindu editorial. (Helps in Essay and CSAT comprehension passages)
RBI microfinance proposals that are anti-poor.
1st para: Probable title: Implications f microfinance.
Opinion of writer: with implementation of objectives given in 'consultative document on regulation of microfinance' there will be expansion in microfinance lending by private financial institutions as per provision in document 'credit at high rates of interests to the poor'
2nd para: Probable title: Changes in handling of rate of interests by Banks.
Consultative document recommends removal of current rate of interest as charged by NBFC and other private banks.
Consultative document proposes ROI should be determined by governing board of banks and competition will bring down ROI.
Concern: Abandoning of expansion of low cost credit to rural poor (most are women)
Doc proposes to deregulate ROI charged by Private MFI.

Probable title: Current guideline for ROI for NBFC-MFI
According to current guidelines max ROI should be lower from:
Cost of funds plus margin of 10% for large banks and 12% for others.
Avg base rate 7.98%
Official ROI on MIcroF between 22%and 26%

Case study.

A loan break up, violations.
There is a higher ROI charged by NBFC-MFI against higher risks of default.
RBI guideline: No recovery at borrowers residence

Concern: Cost of funds were lowered for NBFC and no restrictions on interest rate.

Reason for NBFC coming into existence: Lack of regulation and scope of high returns for microcredit given by commercial bank.
Crisis arose because of malpractice in MFI's, happened due to unregulated expansion of private for-profit micro lending.
A new framework for NBFC introduced in Dec 2011 as recommended by Malegam Committee.

Consultative doc notes: 31% microfinance provided by NBFC-MFI, 19% by SFB's and 9% by NBFC.
Current share (which is 41%) in public sector banks is about to decline, in microfinance.

Concerns: RBI doc will further lead to privatisation of rural credit, reducing share of direct and cheap credit and leaving poors at the helm of Private institutions.
Demand by Women association: ROI on microfinance not exceed 12% per annum.

Remedies recommended to meet the credit needs of poor household:
Policy reversal,
Strengthening of Public sector commercial banks and,
Firm regulations of private entities.