Promoting Financial Inclusion - United Nations Development ...

clients as the insurance companies have
found different means (like selling to middle
and upper income families in rural areas) of
meeting their required targets. Some other
restraining factors have been: limitations on
the definition of MI agents, the capping
commissions at levels not commensurate
with the responsibilities to be carried out
by MI agents, service tax on premiums and
commissions that reduced returns for agents
and restrictions on partnerships of an agent
with not more than one life and one nonlife
insurance company.
Thus, while the regulatory requirements
have been enablers to encourage insurance
companies to cast a wider net to include the
financially excluded population, in some
cases the obligations have been limiting.
The insurance regulatory authorities have
been cautious in their effort to pre-empt
potential difficulties in the functioning
of the nascent micro-insurance system.
This approach while facilitating financial
inclusion on one hand has prevented
insurance companies from taking bold steps
towards financial inclusion.
4.4 SPECIAL FUNDS FOR
FINANCIAL INCLUSION –
WHAT’S THE RESULTING
IMPETUS?
The apparent success of the Self Help
Group (SHG) movement resulted in the
Government of India repeatedly co-opting
SHGs as its institutional outreach arm
for subsidy linked credit schemes such
as the Swarna Jayanti Swarojgar Yojana.
As part of the effort to strengthen SHGs,
the microfinance sector that works with
SHGs amongst other types of groups and
to promote overall financial inclusion,
the government established three funds
administered by NABARD. These are:
• Microfinance Development and Equity
Fund (MFDEF) to support the growth
of the microfinance sector.
• Financial Inclusion Fund (FIF)
• Financial Inclusion Technology Fund
(FITF).
4.4.1 FUND FOR MICROFINANCE PROMOTION
The Government of India established a
`100 crore microfinance development
fund for the promotion of microfinance in
India through the nurturing and capacity
building of SHGs, start-up funds for MFIs,
development of delivery mechanisms
and action research, MIS development
and dissemination of best practices in
microfinance. Since relatively little progress
had been made in the use of these funds,
it was re-designated as the Microfinance
Development and Equity Fund (MFDEF)
in 2005–06. Further, the fund size was
enhanced from `100 crore to `200 crore,
with the additional amount as a contribution
from RBI, NABARD and commercial
banks in a 40:40:20 ratio. The objective of
MFDEF is to ‘facilitate and support the orderly
growth of the microfi nance sector through diverse
modalities for enlarging the fl ow of fi nancial
services to the poor particularly for women and
vulnerable sections of society consistent with
sustainability’. 17
In the Union Budget of 2010-11 this
amount was enhanced to `400 crore with the
objective of ‘further up-scaling the quality
and depth of microfinance interventions in
the country.’ The additional activities to be
sponsored by the fund were capital support
to MFIs, loans to MFIs for on-lending, selfhelp
promotion initiatives of banks (SHPIs)
and rating of MFIs.
A change of name and the injection of
additional capital, however, failed to add
much adrenalin to the fund. By the end
of 2009-10, NABARD had sanctioned
an amount of `80.91 crore from the fund
which included `60.42 crore to MFIs as
capital support/revolving fund and `20.49
17
NABARD website. www.nabard.org.
22 PROMOTING FINANCIAL INCLUSION