The Microfinance Institutions have a major role to play in the economy and are of integral importance. Reserve Bank of India’s deputy governor Subir Gokarn however believes that the lending to MFIs is not justifiable, and thus the MFIs will have to find ways to deal with regulations of the central bank will have to operate in their agenda.
RBI’s former governor Yaga Venugopal Reddy had very recently given the tag of India’s sub-prime to these Microfinance Institutions.
The MFIs were asked to bring down the lending rates to 20-24%. SKS has microfinance has after that announced that it will bring down the rated 24% and will also follow the pre-condition of advances.
All the major analysts believe that the MFIs cannot be considered out of the system but they still have to find a way to accommodate into the system with the central bank’s changing attitude towards them. These MFIs provide loans to the lower segment of the society ranging somewhere between $120 to $140. They have reduced the lending rates in major parts of the country squeezing the profit margins.