MICROCAPITAL BRIEF: Indian Budget Plans Include Partnering with Small Industries Development Bank of India (SIDBI) to Create $22m India Microfinance Equity Fund

The Indian government began review of a draft 2011-2012 budget, which reportedly includes a partnership with the Small Industries Development Bank of India (SIDBI), a government-owned bank providing credit to microfinance institutions, to allocate funds totaling approximately INR 100 crore (USD 22 million) to traditionally underserved groups via a newly established India Microfinance Equity Fund. The funding would be aimed at increasing recipient institutions’ liquidity and thus stimulate lending, which has been slowed by the turmoil in the microfinance industry in the state of Andhra Pradesh that began late in 2010 [2].  Shri Mukherjee, India’s Finance Minister, expressed that “the creation of a dedicated fund for providing equity to smaller microfinance institutions (MFIs) would help them maintain growth and achieve scale and efficiency in operations” [3].

In addition to the creation of the fund, the government outlined that public sector banks would be required under “priority lending” to allocate 15 percent of outstanding loans to minority communities. Furthermore, under the new budget, the government would mandate the delivery of banking services to all 73,000 habitations nationwide with a population of 2,000 or more.

The proposed budget also reflects some of the measures recommended by the Malegam Committee in February such as a microloan interest rate cap of 24 percent and a maximum loan amount of INR 25,000 (USD 538) for any single borrower [4].

By Jacqueline Foelster, Research Associate

About Small Industries Development Bank of India (SIDBI): The Small Industries Development Bank of India (SIDBI) was established by the Indian Parliament in 1990. It provides credit to large- and medium-scale microfinance institutions (MFIs). SIDBI reports having facilitated total financial assistance equivalent to USD 397 million during the fiscal year ending March 2009. This amount includes term loans, equity support and capacity building grants to MFIs. SIDBI is listed on, but does not report data to the US-based nonprofit data provider Microfinance Information Exchange (MIX).

Sources and resources:

[1] VCCircle, “What the Budget Spells for Troubled Microfinance Sector”, http://www.vccircle.com/500/news/what-the-budget-spells-for-troubled-microfinance-sector#comment-22101

[2] MicroCapital.org Article, January 14, 2011, “Urged by Local Politicians, Microfinance Borrowers in India’s West Bengal State Stop Repaying Their Loans”, https://www.microcapital.org/microcapital-brief-urged-by-local-politicians-microfinance-borrowers-in-india%E2%80%99s-west-bengal-state-stop-repaying-their-loans/

[3] Government of India Press Bureau, “Focus on Regional Banks and Micro Finance Institutions as Means Financial Inclusion”, http://pib.nic.in/newsite/erelease.aspx?relid=70278

[4] MicroCapital.org Article, January 26, 2011, “Reserve Bank of India (RBI) Subcommittee Proposes Regulation for Microfinance Institutions (MFIs)”, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-subcommittee-proposes-regulation-for-microfinance-institutions-mfi/

MicroCapital Microfinance Universe Profile: Small Industries Development Bank of India (SIDBI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Small+Industries+Development+Bank+of+India+%28SIDBI%29

Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse/

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