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Box 7.1 Continued foreign sources of equity capital. It is also important to note that existing FDI regulations skew foreign equity funds away from start-up MFIs which lack the scale to attract individual equity investments of this size. While many foreign investors may be willing to make smaller investments in one or more well-run institutions, few are willing to invest $500,000 in a single NBFC-MFI. Additionally, different MFIs require different amounts of capital. One MFI may require $250,000 in capital while another may require $700,000. Enforcing a $500,000 minimum capital requirement prevents Percent Ownership Minimum Capitalization requirements for foreign equity investment in NBFCs Minimum Capital Requirement Other Stipulations 0-51% 51-75% 76-100% $500,000 $5,000,000 $50,000,000 Entire amount must be contributed up front Entire amount must be contributed up front $7.5 million must be contributed up front. The balance must be provided within 24 months. Source : www.rbi.org.in RBI Circular on Foreign Direct Investment (7/01/2006). Annex-2, Sector- 2 (NBFCs)-Sector Cap on Investments by Persons Resident Outside India. NBFCs from receiving optimum levels of foreign investment. Thus, the most onerous NBFC-FDI restriction is clearly the $500,000 minimum capital requirement. We propose reducing this initial requirement to $100,000. This will still discourage non-serious investors from investing in the sector, but will also create more breathing room to Proposed Alternative: Minimum capitalization requirements for FDI in NBFC-MFIs Percent Ownership 0-25% 26-50% 51-75% 75-100% Minimum Capital Requirement $50,000 $100,000 $500,000 $1,000,000 Other Stipulations Entire amount must be contributed up front Entire amount must be contributed up front Entire amount must be contributed up front Entire amount must be contributed up front 130
Equity Investments by the Venture Capital Funds Box 7.1 Continued optimize the size of equity investment as well as attracting a greater pool of foreign investors. Modifying the majority ownership requirement Equity investors typically prefer having minority stakes in NBFCs. This leaves more space to craft high-powered equity-based incentive packages for local managers. The RBI also prefers local ownership of NBFCs because it eases its monitoring task. Thus, there is a case for having a substantial step-up in the FDI required to achieve a majority stake in an NBFC. However, there is also real concern that the 10x increase in capital requirements accompanying the jump from 50 per cent to 51 per cent ownership is too sharp. One alternative is a slightly more gradual FDI capital/ownership requirement scale rather than the three-tier structure outlined above. As a possible benchmark, we've presented a micro credit-only NBFC-FDI regulatory structure alternative below, incorporating far lower capital/ownership hurdles and a slightly more gradual scale. Most of India's poor still lack even basic financial services. If foreign investors want to help India alleviate this pressing problem, their investments should be welcomed, subject to minor controls. We feel a structure of the kind presented above would open up the sector to many more potential foreign investors while still encouraging local NBFC-MFI ownership. Excerpted from Rati Tripathi and Daniel Radcliffe, Forthcoming. 131
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Microfinance in India A State of th
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List of Tables Page No Table 2.1 Gr
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Preface and Acknowledgements This r
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Abbreviations ABC ADB BC BF CAR CAG
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CHAPTER 1 Overview and Summary of M
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Overview and Summary of Main Recomm
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1 1a 1b 2 2a 2b 2c 3 3a 3b 3c 4 4a
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The Light and Shades Study A major
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highest proportion of weak records
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their profitability after accountin
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allow the programme to grow organic
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1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8
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Endnotes 1 It is very hard to compa
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as cash with the groups, the true r
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linkages", 11 percent 3rd, and 5 pe
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References APMAS (AP Mahila Abhivru
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CHAPTER 3 Progress Under the MFI Mo
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Progress Under the MFI Model is fun
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Table 3.4 Comparative performance i
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Progress Under the MFI Model on lit
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Progress Under the MFI Model 4 Howe
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Progress Under the MFI Model Refere
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MFIs, and the need for MFIs to plou
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size had actually come down during
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The point at which peer group press
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The lack of contact and communicati
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Box 4.1 Continued 4. MFIs will coll
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Endnotes 1 There will be many disag
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19 The base suicide rate in AP is 1
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References APMAS, 2005, "A Report o
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(such as cattle and houses), and co
Page 82 and 83: The advantage of the provider model
Page 84 and 85: Some lessons learnt from experience
Page 86 and 87: Box 5.2 VimoSEWA: Synergies between
Page 88 and 89: 86 Table 5.1 Main Feature of Health
Page 90 and 91: Endnotes 1 While the microinsurance
Page 92 and 93: 16 A little less than a fifth of th
Page 94 and 95: 29 The rationale for transfer progr
Page 96 and 97: Roth, James and Vijay Athreye, 2005
Page 98 and 99: Issues and priorities for action re
Page 100 and 101: Endnotes 1 See for instance CGAP (2
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Page 104 and 105: such as Chaitanya who soon became s
Page 106 and 107: money to support operational expens
Page 108 and 109: finance, and the microfinancial ski
Page 110 and 111: Box 6.1 Continued in experts and to
Page 112 and 113: Endnotes 1 In a sense it always was
Page 114 and 115: 16 Examples are Margdarshak in Luck
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Page 118 and 119: Table 7:1 Commercial bank exposure
Page 120 and 121: The main constraints to the expansi
Page 122 and 123: further review, RBI has modified th
Page 124 and 125: 9 Thus ICICI has sold some of its b
Page 126 and 127: B. Equity Investments by the Ventur
Page 128 and 129: Figure : The Bellwether triangle Lo
Page 130 and 131: Despite the weaknesses the public s
Page 134 and 135: Endnotes 1 At this point they will
Page 136 and 137: References ACCION, 2003, "The Servi
Page 138 and 139: SIDBI Foundation for Micro Credit (
Page 140 and 141: categories, depending on the amount
Page 142 and 143: The distribution of total disbursem
Page 144 and 145: Endnotes 1 It should be noted that
Page 146 and 147: B. Donor Participation in Indian Mi
Page 148 and 149: this has dropped to 8% on the curre
Page 150 and 151: and poor populations. More directly
Page 152 and 153: and expansion of available retailer
Page 154 and 155: 11 SDC through various programs for
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Page 158 and 159: 1.1 Impact evaluation of Spandana's
Page 160 and 161: in the loan tenure of 24 months. Th
Page 162 and 163: There are two main motivations of a
Page 164 and 165: compensation structures used by Ind
Page 166 and 167: Endnotes 1 By Annie Duflo, Anvesha
Page 168 and 169: 29 The main components of direct tr
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