While flow of bank credit to microfinance industry has recovered in the last two years, banks are said to be exercising great caution in choosing the right microfinance institution (MFI).
Banks have become very selective in their funding decisions. They are looking for MFIs which are compliant with the code of conduct and with RBI norms, Mathew Titus, Executive Director of Sa-Dhan (an association of community development finance institutions) informed reporters.
He said this on the sidelines of a workshop on Regulatory and Code of Conduct Compliance by MFIs. Banks, Titus said, also increasingly preferred to extend loans to MFIs, which have a registration certificate from Sa-Dhan, which has close to 180 registered members across the country, of which, 25 are in West Bengal.
The crisis in the MFI industry in Andhra Pradesh in 2010 reduced lending by banks to the sector.
It is learnt that almost 90 per cent of the disbursals made by microfinance companies are funded by bank loans. So any decline in bank loans leads to a drop in the business of MFIs.
In 2013-14, loan outstanding with MFIs may expand 15 per cent to over Rs 25,000 crore from Rs 22,000 in 2012-13, some reports suggest.
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