Small wonder: Funds come cheaper for NGOs, MFIs

The small guys have reason to smile. The cost of funds for micro-finance institutions (MFIs) and non-government organisations (NGOs) is set to come down with the government allowing qualified NGOs to engage in micro-finance activities using the external commercial borrowing (ECB) window.

This will mean that some NGOs could raise loans at finer rates from overseas markets. However, in the domestic market, not all banks are keen on exposure in this segment.

Addressing the issue of risk capital, the corpus of the Micro Finance Development Fund (MFDF) has been doubled from Rs 100 crore to Rs 200 crore.

The name of the fund has also been changed to Micro Finance Development & Equity Fund (MFDEF) and will be managed by a board consisting of representatives of Nabard, commercial banks and professionals.

The access to ECBs will reduce the cost of funds for MFIs. “At PLR, the cost of funds works out higher for MFIs,� explained MS Kapur, CMD, Vijaya Bank. But the move is expected to benefit only those few NGOs/MFIs who have a good rating or have international associations.

Nabard has already started working on the modalities. “We are working out the modalities with the rating agency. MFIs will have to subject themselves to financial discipline,� explained Ranjana Kumar, CMD, Nabard.