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Thursday, Nov 23, 2006

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Micro-finance institutions under RBI lens

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`MFIs are disbursing loans within 10-15 days of the formation of the group, unlike the SHG-bank linkage programme'.

Mumbai , Nov. 22

Micro-finance institutions (MFIs), financed by banks or acting as their partners, have come under the scanner of the Reserve Bank of India.

In many cases, banks have not made any review of MFI operations after sanctioning credit. "Banks, as principal financiers of MFIs, do not appear to be engaging them with regard to their systems, practices and lending policies with a view to ensuring better transparency and adherence to best practices," said a joint fact-finding study on micro-finance conducted recently by RBI and a few major banks.

Many MFIs have been criticised for focussing on relatively "better banked" areas, including those covered by the SHG-bank linkage programme. The study also pointed out that MFIs were disbursing loans to the newly formed groups within 10-15 days of their formation, unlike the SHG-bank linkage programme, which takes about 6-7 months for group formation and nurture. "Many MFIs supported by banks were not engaging themselves in capacity building and empowerment of the groups to the desired extent," it said.

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