New Delhi, Jan 17 (KNN) The microfinance industry is rallying for government support to enhance funding opportunities for small and medium-sized lenders.

Jiji Mammen, Executive Director, and CEO of Sa-Dhan, which is an association of microfinance and impact finance institutions proposes the creation of a dedicated fund similar to the India Micro Finance Equity Fund (IMEF) within Nabard to provide equity support to small and emerging microfinance institutions (MFIs).

Mammen recommends an allocation of Rs 250 crore for this purpose.

Additionally, he urges the government to establish a guarantee fund for smaller MFIs in collaboration with the National Bank for Agriculture and Rural Development (Nabard) subsidiary, Nabsanrakshan.

Through this subsidiary, Nabard could extend a guarantee cover for lenders' borrowings from banks and financial institutions.

According to the latest data from the Microfinance Industry Network (MFIN), the gross loan portfolio of microfinance institutions has surged from Rs 3 trillion to Rs 3.8 trillion as of September 30.

Microfinance-focused non-banking financial companies (NBFCs) hold a dominant 40 per cent market share, followed by banks at 32 per cent, and small finance banks at 19 per cent.

Despite this growth, nearly 70 per cent of the microfinance sector's loan portfolio is concentrated in the top 200 districts.

The lack of adequate funding sources poses a challenge for many microfinance institutions to expand further. Some of these institutions offer integral housing loans and water sanitation and hygiene (WASH) loans, often priced at interest rates between 20-26 per cent.

Experts emphasise the need for a transformation fund to empower non-governmental organizations and development institutions operating in remote areas.

They also suggest that the Reserve Bank of India (RBI) and development finance institutions collaborate to provide a refinance facility, aimed at reducing interest rates and making these services more affordable.

As the industry awaits the government's response, these proposed measures could potentially spur growth and financial inclusion in the microfinance sector.

(KNN Bureau)