India Microfinance Equity Fund (IMEF)

Why in the News?

Sa-dhan, the self-regulatory organisation for microfinance institutions (MFIs), has recently sought the setting up of a new refinancing body and greater flexibility in the India Microfinance Equity Fund (IMEF).

• Created by – Ministry of Finance, Department of Financial Services with an initial corpus of Rs.100 crore in 2012, focused on smaller microfinance institutions (MFIs).
• Objective – To alleviate poverty and achieve long term sustainability of operations in un-served and under-served parts of the country.
• Aids borrowers – The fund is utilized for extending equity, quasi equity or subordinated debt to Tier II (between 50,000 to 2,50,000 borrowers) and Tier III (less than 50,000 borrowers) MFIs.
• Issues with IMEF:
  • Limited utilization (only Rs 19 crore sanctioned to 10 MFIs).
  • Restrictive cap of Rs 5 crore per MFI.
  • Need for increased corpus beyond current Rs 300 crore.
• Proposals by – Sa-dhan (self-regulatory organisation for MFIs).
• Micro Units Development and Refinance Agency Bank (MUDRA Bank) – To be converted into an exclusive provider of refinance for dedicated microfinance institutions (MFIs).

MUDRA is a refinancing Institution and does not lend directly to the micro entrepreneurs / individuals.

MUDRA Bank lends at low interest rates to MFIs and non-banking financial institutions (NBFCs), which, in turn, finance small businesses.

• Funding Architecture Challenges – Strengthening and expanding the existing financial resource system for MFIs to reduce dependence on banks for funding.

References

1. The Business Standard| Sa-dhan’s India Microfinance Equity Fund (IMEF)
2. PIB| India Micro finance Equity Fund (IMEF)
3. Sa-Dhan| Sa-Dhan & its Objectives