Representatives of the Indian microfinance industry recently commented on the likely impact of the USD 250 million Asian Development Bank (ADB) initiative that will offer guarantee facilities to banks that loan to microlenders in the Asia-Pacific region, as was covered by MicroCapital.org on December 22, 2010 [2].
The ADB initiative has been welcomed by some, such as Vijay Mahajan, the president of Microfinance Institutions Network, a lobby of microfinance institutions (MFIs) in India. Mr Mahajan reportedly stated that the guarantee facility would enhance the flow of funds into a sector that is currently experiencing a liquidity crunch. Others, such as Vineet Rai, chief executive officer of Aavishkaar India Micro Venture Capital Fund, a microfinance-focused fund, is of the opinion that the fee charged by the facility would translate into such high borrowing costs for microlenders that coupled with the interest rate cap of 24 percent recently proposed by the Reserve Bank of India (RBI), use of the funds would actually prove unviable.
The facility, which will operate over the course of three years, is intended to encourage banks to lend to MFIs by limiting banks’ exposure in the event of default by MFIs. The proposal from ADB is part of its long-term plan to increase private sector development commitments to 50 percent of annual operations by 2020 [1].
By Medha Ravi, Research Associate
About Asian Development Bank:
Established in 1966 and headquartered in Manila, the Philippines, the Asian Development Bank (ADB) is a development finance institution that consists of sixty-seven members, of which forty-eight are located in the region. The ADB has three strategic priorities: to foster inclusive growth, to facilitate regional integration and to ensure environmentally sustainable growth. To accomplish these objectives, the ADB uses loans, technical assistance programs, grants, equity investments and guarantees to private companies in member countries. The ADB reported a total capitalization of USD 56 billion as of December 31, 2009.
About Reserve Bank of India (RBI):
Established in 1935, the Reserve Bank of India undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. RBI consists of twenty-two regional offices.
Source and Resources:
[1] The Wall Street Journal, Live Mint news article “ADB plans to set up $250 mn guarantee fund for microfinance”, http://www.livemint.com/2011/02/09230153/ADB-plans-to-set-up-250-mn-gu.html?atype=tp
[2] MicroCapital.org story, December 22, 2010, “MICROCAPITAL BRIEF: Asian Development Bank (ADB) Launches $250m Microfinance Risk Participation Program”, https://www.microcapital.org/microcapital-brief-asian-development-bank-adb-launches-250m-microfinance-risk-participation-program/
MicroCapital.org story, February 8, 2011, “MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Relaxes Rules in Effort to Ease Microfinance Institution (MFI) Liquidity Crunch”, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-relaxes-rules-in-effort-to-ease-microfinance-institution-mfi-liquidity-crunch/
MicroCapital’s Microfinance Universe Profile: Asian Development Bank (ADB), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Asian+Development+Bank+%28ADB%29
MicroCapital’s Microfinance Universe Profile: Reserve Bank of India (RBI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29
Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/
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