Over the past few months we have been approaching MFI in several countries – Kenya, Nigeria, Sierra Leone, Sri Lanka, Pakistan, Indonesia, Philippines and Cambodia. While most of the MFIs in India get their loan funds from local banks, in these countries there seems to be very little funding from local banks.
Even in cases where banks fund MFIs, the loan is backed by an international guarantee and in many cases it is a 100% guarantee. In a few countries we found local development wholesale funds that lend to MFIs without a guarantee.
We have started the process of evaluating some of these organizations and we are glad to announce that we are making steady progress with one organization in Sri Lanka. This will be the first loan for the organization from a Bank. We hope to have more news to share soon.
In India, the regulator (Reserve Bank of India - RBI) is likely to implement some of the recommendations of the Malegam committee. These regulations will be applicable for the large Non Banking Finance Company (NBFC) MFIs that were already being regulated by the RBI. A microfinance bill to cover all categories of MFIs will also be drafted over the next few weeks and it will be eventually presented to the Indian Parliament around July 2011. The uncertainty and dramatic slow-down in bank funding is likely to continue till the regulations are fully crystallized.
All these tell us that governments and regulators in countries have a very important role to play in making sure that microcredit is suitably supported and properly regulated. In India, there needs to be appropriate and comprehensive regulations backed by timely action against any errant organizations so that microcredit is safely and consistently delivered to clients.
In many other countries regulators need to find ways for MFIs to mobilize a reasonable amount of funds from local banks and/or the savings of microfinance clients so that adequate funds are available for the larger future needs. Further mobilizing local funds will also reduce foreign aid dependence, make local economies self sufficient and also make MFIs and their clients insulated from currency devaluations and international financial shocks. Our guarantees will make a positive contribution here in the years to come.
Meanwhile, we continue to look forward to an early spring.