Microlenders have urged the finance ministry to create a ₹500- crore fund under Nabard for equity support to small and upcoming microfinance institutions (MFIs).

Industry body Sa-Dhan in a letter to the Union finance minister Nirmala Sitharaman has said that growth capital is essential for microfinance lenders to expand their reach. The lenders have already registered outstanding loans of ₹1.5 lakh crore to over 5 crore households.

“The government may consider creating a special fund similar to the India Micro Finance Equity Fund (IMEF) within Nabard. An amount of ₹500 crore may be provided,” said Sa-Dhan in its letter.

Citing the example of rising stress in the microfinance portfolio in Manipur, the industry body has also proposed the creation of a ₹200 crore dedicated fund under the North Eastern Development Finance Corporation (NEDFI) to extend fresh loans to MFIs to restart their business.

“The government of India may consider extending long term interest free loans to MFIs in the state, which will help in funding the poor people and help rebuild the economy. If direct loans to MFIs are not possible, a dedicated fund can be created at NEDFI, in the form of a grant fund, or interest free/low interest fund,” Sa-Dhan said.

Among the other changes Sa-Dhan has also urged the government to create a ₹1,000 crore guarantee fund for availing themselves of bank loan facility for smaller MFIs and a ₹250-crore transformation fund to help NGOs to become NBFC MFIs.

“Smaller MFIs, mostly those with a portfolio below ₹1,000 crore find it difficult to raise debt funds from mainstream lenders such as banks and financial institutions, because their small size gives them a lower rating … The government may consider creating a guarantee fund for the smaller MFIs with Nabsanrakshan, the subsidiary of Nabard, or NCGTC of Sidbi, which can extend guarantee cover for the loans MFIs take from banks and financial institutions,” said the letter.

“A transformation fund can be created and transformation equity can be extended to these NGOs for their transformation into NBFCs. The fund can be used in Sa-Dhan or by DFIs such as Nabard,” the letter added.