RBI considers allocating MFI's as business correspondents
By Vaibhav Aggarwal
Jun 8, 2010
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Banking regulator, RBI has decided to consider the proposal which was given by some micro finance institutions (MFIs) so as to allow them to act as business correspondents of banks.

RBI is seroiusly looking into the matter of achieving total financial inclusion by the year 2012.

Marking the issue Reserve Bank of India deputy governor Usha Thorat said at an international forum in Washington that RBI is scrutinuing the proposal that big profit oriented companies which have a wide branch network in rurak areas can be allowed to act as business correspondents.

"This issue is currently under examination and in doing so possible risks such as conflicts of interest, co-mingling of funds, misrepresentation and other agency-related risks would need to be weighed against possible safeguards for consumer protection," she said.

MFIs have a huge penetration into the rural households. They have so far managed to provide finance worth Rs 2.2 crore to rural people. They are registered with RBI as NBFCs and cannot use banking channels of lending.

RBI's decision in favor of allocating these MFIs as business correspondents is expected to rise the level of financial inclusion to a significant height.

Ms Thorat has also clarified that the central bank is not in favour of capping the interest rate charged by MFIs.
"Views have been expressed that with the lending to MFIs included in the priority sector, there should be a cap on the interest rates charged to the ultimate borrower. Efforts at financial inclusion can be sustained only if the delivery models are viable and interest rate caps can be a deterrent. From a regulatory perspective, we emphasise transparency, creating better awareness, customer education and effective grievance redressal systems," she said.


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