SA-DHAN

• NAME - GULSHAN
• COURSE- B.VOC. MANAGEMENT FINANCIAL SERVICES
In October 2010, RBI formed a committee under financial sector
expert Y.H. Malegam that recommended an SRO framework for
MFIs to regulate the sector.
The move will give Sa-Dhan powers to monitor microfinance institutions and ensure
lenders are in compliance with the rules.

New Delhi: Sa-Dhan, an association of microfinance institutions (MFIs),

said on Thursday that the Reserve Bank of India (RBI) had accorded it the
status of a self-regulatory organization (SRO), which will give it the powers
to monitor MFIs and ensure the lenders are in compliance with the rules.

Sa-Dhan is the second association in the business of micro-lending to be

given the SRO status by the central bank. Microfinance Institutions Network
(MFIN) last year became the first. MFIs advance small loans to low-income
borrowers who typically are not covered by the formal banking system.
“In August 2014, we held our annual general meeting and decided to apply for SRO. We
recently got the approval from RBI," said Brij Mohan, a board member of Sa-Dhan.

Though Sa-Dhan is an older association than MFIN, the latter got the status first
as “Sa-Dhan was late in applying", said Mohan.

MFIN is an association of MFIs operating as non-banking financial companies

(NBFCs). Sa-Dhan has members across the NBFC-MFI category as well trusts,
so-called section 25 companies that plough back any profits they make back into
the business, and not-for-profit organizations.
.
In October 2010, RBI formed a committee under financial sector expert Y.H.
Malegam that recommended an SRO framework for MFIs to regulate the
sector.

The committee was set up after the Andhra Pradesh, the biggest market for
micro loans, approved an ordinance that reined in MFIs following reports
that coercive loan recovery practices were driving over-extended borrowers
to commit suicide.

An SRO is required to formulate a code of conduct for members

and ensure compliance, have an effective grievance redressal
system for borrowers and a a dispute resolution structure for
members.
“We will have a two-way approach of operating. First, we will educate members and help
in capacity building and second, we will ensure client protection," said Mohan.

Sa-Dhan plans to form a compliance committee and a grievance redressal committee.

NBFC-MFIs will now have a choice between Sa-Dhan and MFIN to report to. The
Malegam committee report said an MFI should be member of at least one SRO. Some
NBFC-MFIs now are members of both.

“It is good to have competition for quantifiable products, but when the
issue is about governance, multiplicity may not work given that there is no
standardization of benchmarks," said Ratna Viswanathan, deputy chief
executive officer, MFIN.
According to her, MFIs may go to SRO whose compliance structure will suit
their requirements. Mohan says that one has to wait and watch the course
NBFC-MFIs adopt.

Sa-Dhan seeks government support for its

members
Microfinance industry association Sa-Dhan has pleaded with the
government to ensure liquidity for its members, as the raging
second wave of corona pandemic has raised the risks of tight
funding from banks.
In a letter to finance minister Nirmala Sitharaman, Sa-Dhan has suggested extension of the
government's partial credit guarantee scheme for bank loans on micro lenders to the extent of Rs
10,000 crore with Rs 2,000 crore being earmarked for small and medium MFIs.

Last year, the government had announced a partial guarantee of up to

20% of first loss to state-owned banks for purchase of bonds or
commercial papers of NBFCs, MFIs and housing finance companies
having a credit rating of AA or below, including unrated paper with
original maturity of up to one year.

. "There is a need for increased credit flow from banks - from both
public sector and private sector banks - to the MFIs in view of the
recurrence of the pandemic," Sa-Dhan executive director P Satish
said in his letter to the finance minister.
"An emergency credit line facility in the form of a pre-approved sanction limit of
up to 25% of the loan outstanding may be extended to MFIs by all banks," said
the letter dated April 28, 2021.

The Reserve Bank of India has already extended a special liquidity facility to
National Bank for Agriculture & Rural Development, Small Industries
Development Bank of India and National Housing Bank to the tune of Rs 25,000
crore, Rs 15,000 crore and Rs 10,000 crore respectively in the current financial
year.

Sa-Dhan has requested the finance minister to allocate Rs 10,000 crore from
Nabard and Rs 7,000 crore from Sidbi for the microfinance sector.
"Nabard and Sidbi should liberalise their norms and conditions of refinancing to ensure
a greater funds flow to MFIs," the industry body demanded. They can adopt only
grading norms instead of rating to help the MFIs with portfolios below Rs 200 crore
assess the fund, it said.

MFI body Sa-Dhan writes to FM seeking Rs 7,500

crores towards Credit Guarantee Scheme
India’s largest association for the micro finance sector, Sa-Dhan, has written to the
Finance Minister Nirmala Sitharam for allocation of further Rs 7,500 crores for the
Credit Guarantee Scheme for MFIs.
Sa-dhan submitted that since banks are accounting for the MFI portfolio under
NBFC category, once they are reaching the exposure limits under NBFCs, they are
unable to approve more funding.

“The Ministry of Finance has been eager to track the scheme and understand the
overall impact,” said P. Satish - Executive Director, Sa-Dhan. “The additional Rs
7,500 crores will help smaller MFIs and non NBFC MFIs to reach out to the most
vulnerable people of the country in the government's endeavour of financial
inclusion."

According to data with the Ministry of Finance, even smaller, lower -rated and
non-NBFC-MFIs have applied for loans worth Rs 18,500 crores from 44 banks.