Malegam panel recommendations not feasible, say microlenders

Microfinance institutions, or MFIs, could well run into a crisis if certain recommendations of a Reserve Bank of India (RBI) panel are implemented in the current form, executives in the business warned, even as shares of SKS Microfinance Ltd, the largest and lone listed MFI in the country, rose 3.84% to close at `694.25 apiece on Thursday on the Bombay Stock Exchange. The stock rose 13.08% intraday to `756. The exchange's benchmark index, the Sensex, rose 0.36% to close at 19,046.54 points. Udaia Kumar, managing director of Share Microfin Ltd, and a member of Microfinance Institutions Network, an industry lobby group, said MFIs would approach RBI to sort out some of the contentious issues in the report. MFIs, in the business of lending tiny loans to poor peo- ple, are already facing a tough time in Andhra Pradesh on ac- count of a controversial state law. The RBI committee, headed by noted chartered accountant Y.H. Malegam, has proposed capping the interest rate at 24% for individual loans; a ceiling of `50,000 on the annu- al family income of the borrower; and a Rs. 25,000 ceiling for loans to a single borrower. The proposals, if accepted, will be implemented by 1 April. More than the cap on the loan rate, MFIs are worried about the ceilings on income and loan amount. Senior executives in MFIs said most of the people who currently borrow from them will not be able to access money if these limits are implemented as a majority belong to families with an annual in- come in excess of `50,000, and require loans higher than `25,000. Smaller MFIs, in particular, will be severely hurt, they added.