Microfinance Industry Seeks Additional Funding Ahead of Union Budget 2024

The Union Budget in 2024 is just around the corner, and the microfinance industry is making its voice heard. With the aim of further supporting smaller microfinance institutions (MFIs) with portfolios below Rs 1,000 crore, industry leaders are urging the government to take specific actions to facilitate additional funding and growth.

One of the key suggestions put forth by Jiji Mammen, executive director and CEO of Sa-Dhan, is the creation of a guarantee fund for smaller MFIs. This fund, potentially managed by NABSANRAKSHAN or NCGTC, could provide guarantee cover for borrowing from banks and financial institutions, giving smaller players more access to funding. An initial allocation of Rs 1,000 crore could kickstart this initiative.

Furthermore, the proposal for a dedicated refinance facility of Rs 30,000 crore under Sidbi or Nabard could significantly lower the cost of borrowing for NBFC-MFIs, promoting further growth and financial inclusion in the sector.

The latest data from MFIN shows a significant increase in assets under management for microfinance institutions, highlighting the sector’s growth potential. However, challenges such as the unrest in Manipur have impacted the functioning of MFIs in the region, calling for government intervention in the form of long-term interest-free loans to support recovery and rebuilding efforts.

In addition to addressing immediate challenges, industry players are also looking towards the future by suggesting ways to upgrade NGOs into microfinance institutions. By infusing capital and strengthening management and resources, these NGOs could play a more significant role in promoting financial inclusion.

Satish Creditcare Network chairman HP Singh has also proposed tax relief on profits earned from affordable housing projects to incentivize developers and boost the construction of affordable housing units. Reintroducing tax benefits under Section 80-IBA of the Finance Act, 2016, could be a step in the right direction.

As the Union Budget approaches, the microfinance industry’s recommendations provide valuable insights into how the government can support and nurture the sector’s growth. By addressing funding challenges, promoting financial inclusion, and incentivizing key initiatives, policymakers can pave the way for a more robust and sustainable microfinance ecosystem in India.