Page 197 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance

Notes 8. Is Foreign Investment allowed in Micro Credit projects?
Ans. Govt. of India vide their notification dated August 29, 2000 have included 'Micro Credit/
Rural Credit' in the list of permitted Non-Banking Financial Company (NBFC) activities
for being considered for Foreign Direct Investment (FDI)/Overseas Corporate Bodies
(OCB)/Non-Resident Indians (NRI) investment to encourage foreign participation in micro
credit projects. This covers credit facility at micro level for providing finance to small
producers and small micro enterprises in rural and urban areas.

9. What is the Micro Finance Development Fund?
Ans. There is an urgent need for micro credit providers to shift from a minimalist approach -
that is offering only financial intermediation - to an integrated approach to poverty
alleviation taking a more holistic view of the client including provision of enterprise
development services like marketing infrastructure, introduction of technology and design
development. In this context, the setting up of the Micro Finance Development Fund
marks an important step. Pursuant to the announcement of Union Finance Minister in his
budget speech for the year 2000-01, this Rs. 100 crore fund has been created in NABARD to
support broadly the following activities: (a) giving training and exposure to self-help
group (SHG) members, partner NGOs, banks and govt. agencies; (b) providing start-up
funds to micro finance institutions and meeting their initial operational deficits; (c) meeting
the cost of formation and nurturing of SHGs; (d) designing new delivery mechanisms; and
(e) promoting research, action research, management information systems and
dissemination of best practices in micro finance. This fund is thus expected to address
institutional and delivery issues like institutional growth and transformation, governance,
accessing new sources of funding, building institutional capacity and increasing volumes.
RBI and NABARD have contributed Rs. 40 crore each to this fund. The balance of Rs. 20
crore was contributed by 11 public sector banks.
10. How many types of micro credit providers are there in India and what is the present legal
framework governing them?
The position is as under:

Notes Govt. of India vide their notification dated August 29, 2000 have included 'Micro
Credit/Rural Credit' in the list of permitted Non-Banking Financial Company (NBFC)
activities for being considered for Foreign Direct Investment (FDI)/Overseas Corporate
Bodies (OCB)/Non-Resident Indians (NRI) investment to encourage foreign participation
in micro credit projects. This covers credit facility at micro level for providing finance to
small producers and small micro enterprises in rural and urban areas.

Categories of Providers Legal Framework governing their activities
(a) Domestic Commercial Banks: (i) RBI Act 1934 (ii) BR Act 1949 (iii) SBI Act
Public Sector Banks; Private (iv) SBI Subsidiaries Act
Sector Banks; and Local Area
Banks (v) Acquisition and Transfer of Undertakings Act 1970 and
1980
(b) Regional Rural Banks (i) RRB Act 1976 (ii) RBI Act 1934 (iii) BR Act 1949
(c) Co-operative Banks (i) Co-operative Societies Act
(ii) BR Act 1949 (AACS)
(iii) RBI Act 1934 (for sch. banks)
(d) Co-operative Societies (i) State legislation like MACS
Contd....

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