What is microfinance?

Opportunity International Australia helps people out of poverty through microfinance. Microfinance includes basic financial services - including small loans, savings accounts, fund transfers and insurance. Alongside non-financial services such as business training, microfinance assists people living in poverty who wouldnt usually qualify for regular banking services because they have no form of collateral or formal identification. Loans as small as as $100 help people in poverty start or grow their own small business. This enables them to earn an income so they can afford food, clean water, proper shelter and an education for their children.

Heres how it works

By helping a mother buy a sewing machine to start a tailoring business or a father buy seeds to plant a vegetable garden, small loans enable people in poverty to earn an income and provide for their families. As each business grows, loans are paid back and lent out again. With 97% of loans repaid, the cycle continues, year after year. Each successful business feeds a family, employs more people and eventually helps empower a whole community.

Microfinance plus
As well as microfinance, we provide people living in poverty with non-financial (community development) services to strengthen their businesses and develop their communities.

Our partners
Opportunity International Australia works through local microfinance institutions in developing countries. This ensures we understand the needs of people living in poverty in the area and allows us to serve them effectively.

RBI Sub Committee of the Central Board of Directors to study Issues and Concerns in MFI Sector

The Sub-Committee of the Reserve Banks Central Board of Directors today finalised its terms of reference. The Sub-Committee chaired by Shri Y H Malegam, a senior member of the Reserve Banks Central Board of Directors was set up after the Boards October meeting to study issues and concerns in the micro finance sector. The terms of reference are: 1. To review the definition of microfinance and Micro Finance Institutions (MFIs) for the purpose of regulation of non-banking finance companies (NBFCs) undertaking microfinance by the Reserve Bank of India and make appropriate recommendations. 2. To examine the prevalent practices of MFIs in regard to interest rates, lending and recovery practices to identify trends that impinge on borrowers interests. 3. To delineate the objectives and scope of regulation of NBFCs undertaking microfinance by the Reserve Bank and the regulatory framework needed to achieve those objectives. 4. To examine and make appropriate recommendations in regard to applicability of money lending legislation of the States and other relevant laws to NBFCs/MFIs. 5. To examine the role that associations and bodies of MFIs could play in enhancing transparency disclosure and best practices 6. To recommend a grievance redressal machinery that could be put in place for ensuring adherence to the regulations recommended at 3 above. 7. To examine the conditions under which loans to MFIs can be classified as priority sector lending and make appropriate recommendations. 8. To consider any other item that is relevant to the terms of reference.

There have been some concerns in the recent past expressed in the media about high interest rates, coercive recovery processes and multiple lending practised by some microfinance institutions. In order to study these and other related issues and implications for its policies and given the useful role played by the microfinance institutions in providing access to financial services to the poor and excluded, the Reserve Bank of India set up a

Sub-Committee of the Central Board of Directors of the Reserve Bank to study the issues and concerns in this sector, including ways and means of making interest rates charged by them reasonable. Shri Y H Malegam, a senior member on the Central Board of Directors of the Reserve Bank of India will chair the Sub-Committee. Other members of the SubCommittee include, Smt. Shashi Rajagopalan, Shri U R Rao, Shri Kumar Mangalam Birla and Dr. K C Chakrabarty, Deputy Governor. Shri V K Sharma, Executive Director, Reserve Bank of India will be the Member Secretary to the Sub-Committee. The Sub-Committee will submit its report in three months. The Reserve Bank of India regulates only those microfinance institutions which are registered with it as non-banking finance companies. Although the registered companies cover over 80 per cent of the microfinance business, in terms of number of companies they constitute a small percentage of the total number of MFIs in the country. The Reserve Bank, however, does not prescribe lending rates for these institutions.

Press Release : 2010-2011/591 Two months before the microfinance sector crisis in October, an internal committee of the Reserve Bank of India (RBI) had warned of possible problems in the sector. The report, finalised in July-August, had recommended that RBI withdraw priority sector status to microfinance institutions (MFIs) for bank loans if they fail to bring down interest rates. But before the regulator could act on the report, the sector was mired in crisis.

All MFIs do not come under RBIs purview. It regulates only those registered as nonbanking finance companies. Although they form only a small number of MFIs, they account for 80 per cent of the microfinance business. The committee, which was constituted under RBI Executive Director V K Sharma, had also recommended that banks extend 40 per cent of their total lending to the priority sector. MFIs raise 75-80 per cent of their borrowings from banks, 15 per cent from equity and another 10 per cent from other sources like cash securities. Interest rates charged by MFIs can be as high as 32 per cent, though most have started cutting rates after the recent controversy. The panel report, which has not been made public by RBI, questioned the business model of MFIs and highlighted the need for a complete revamp. It was pointed out that unsecured loans for unproductive purposes could lead to larger problems.