Using Microfinance Institutions (MFI) as Banking Correspondents

The dominant Reserve Bank of India (RBI) concluded a financial decision that gave the Microfinance Institutions (MFIs) the authority to act as business correspondents for banks. The decision has so far been a success from the guarantee of a steady flow of funds to the unbanked sectors although several micro lenders face the challenge of raising enough capital. Data from Bharat Microfinance Report of 2017 indicated a 27 per cent growth in business correspondents in the last fiscal year. Similarly, the off-balance sheet portfolio for MFIs increased from 13 per cent to 20 per cent in the preceding fiscal year. In January 2006, the RBI granted permission to MFIs, NGOs and other civil society organizations to function as banking intermediaries in the provision of financial and banking services. Loans delivered by MFIs as partners of the bank are not included in the balance sheet thus contributes to the growth of their businesses devoid of additional capital.
Manoj Nambiar, MD at Arohan Financial Service expressed significant optimism of the approach that functioned to optimize capital and worked best for small micro finance institutions that could not raise money easily. He described such partnerships as value creators. Microfinance institutions can now develop a customer base and through bank loans and earn an extra fee for their services.
http://economictimes.indiatimes.com/markets/stocks/news/mfis-role-as-banking-correspondents-pays-off/articleshow/60507281.cms