Credit flow to micro-finance institutions will be adequate in future as the regulations relating to MFIs have been issued, Member of Financial Sector Legislative Reforms Commission (FSLRC), Y H Malegam have said. "Credit flows, perhaps, were waiting for the regulations to be issued. And now that the regulations have been issued, I think there should be adequate credit flow to the sector," Malegam told reporters on the sidelines of Financial Planning Congress' 11 organised by Financial Planning Standards Board of India. The microfinance sector was thrown into a tizzy last October when Andhra Pradesh issued an Ordinance that sought stringent regulation of the industry, following reports of a spate of suicides by harried borrowers. Andhra is the largest MFI market in the country. Following this, loan recovery slowed to a trickle and banks also refused to offer fresh funds to MFIs. RBI then set up a committee under the chairmanship of Malegam, who submitted his report early this year. The Malegam Committee came up with its report on MFIs prescribing a interest cap of 24 percent on lending, creation of NBFC-MFIs along with host of other guidelines. Referring to overall health of MFI industry, Malegam said, "So far as other state governments (except Andhra Pradesh) are concerned, there is an improvement. Definitely, interest rates have come down. Well run and efficient MFIs are able to operate under the guidelines issued." He, however, conceded that the proposals given by his committee will have less impact in Andhra Pradesh.
