Dr. N.Jeyaseelan, Kancheepuram

BOOST TO MICRO FINANCE SECTOR TOFACILITATE INCLUSIVE GROWTH.
Of late, Micro finance sector is recording aMassive growth rate. The sector addressingto the needs of the people in the Bottomof the Pyramid market require special packagesin the upcoming budget.

1.Development agencies and international agencies prefer tier I NBFCs for assisting with equity and debt. But, start ups and mid-sized MF NBFCs do not get timely funding. Budget can earmark an Exclusive TRANSFORMATION FUND to provide equity and long term debt (With 7 year maturity and 2 year initial Holiday) only to the start up and mid- sized MF-NBFCs
2. Likewise, in Sec 25 company -MFI, as we cannot pay dividend to the investors, capital raising is a problem. Govt can announce income tax deductions to the corporates who invest in equity of Sec 25 co MFI, as a CSR initiative.
3. MFI's operational expenses ratio has come down from 15.9% in 2005-06 to 11.5% in 2008-09. But the portfolio yield of MFIs have gone up from 24.8% to 31.4% during the same period. i.e. the benefits of cost reduction & scale has not been passed on to the clients and clients keep on paying a higher cost . Hence, Govt. may give income tax incentives to MFIs, which reduce the effective interest rate to clients and subject themselves to Social performance rating and deliver the financial services aligning with their social mission.
4. NGOs (societies and Trusts) should be permitted to undertake mf activity without affecting their tax exemption status under the proposed New Direct tax code, which is going to come into effect w.e.f April 2011.
The above measures will boost the growth of the sector,will facilitate the marginalized people to join the mainstreamand will pave way for more inclusive growth.

Dr.N.Jeyaseelan.
Chief Operating Officer,
Hand in Hand Tamilnadu,
Kancheepuram
jeyaseelan.n@hihseed.org