Rural Finance Practitioner

The recent RBI announcement with regard to priority sector being used for Micro-Finance NBFCs is a very welcome one and is much appreciated as I posted the other day. However, safeguards are needed to ensure that agents of MFIs do not misuse priority sector funds. Thus, when coming out with the detailed guidelines, I hope that the RBI takes cognizance of two major agent led models prevalent in the Indian micro-finance sector.

Let me make a few other assertions. While the exact scale of the agent models nationally is perhaps not known with precision, there is enough cause to believe that it is reasonably widespread as it has been observed in several places in AP, Tamilnadu, UP, Orissa, West Bengal, Karnataka and parts of Madhya Pradesh. This again needs to be looked into closely by the RBI, which is best positioned to conduct an objective and neutral national study and assess which kind of MFIs are involved and why and also geographic places where the same is widespread - and this needs to be done before the detailed directions regarding priority sector are promulgated...

That apart, it is also imperative that the RBI looks closely at these models and builds sufficient safeguards against their use through supervision and other means and using various stakeholders including banks. If this (building safeguards) appears difficult, a more practical approach could be for the RBI to consider streamlining and legalizing the Centre Leader Type Agent Model and building greater accountability into this type of arrangement - especially, if the RBI feels that this model can be fitted under the Business Correspondent regulations. However, the political agent Micro-finance model should be banned without question. All of these are aspects that the proposed RBI committee on priority sector could look into and provide guidance on.

Here are the operational details of two agent led micro-finance models as I have seen it on numerous occasions and also heard from several stakeholders. Read on…