Posted on February 17, 2010 - by James

Reserve Bank of India Asks MFIs to Improve Governance Standards

HYDERABAD: India’s booming microfinance segment is under the scanner, with the Reserve Bank of India (RBI) issuing a veiled warning that it could be taken off the priority sector lending list of banks if the industry fails to improve its governance standards.

This was spelt out at a meeting in late January between senior RBI officials, representatives of Sa-Dhan—the association of Indian microfinance institutions (MFIs)—and some senior MFI managers from Karnataka, West Bengal and Andhra Pradesh.

The RBI officials reportedly told MFI executives that the central bank was aware of the extent of benami loans being given by MFIs, the practice of writing off bad loans and sloppy corporate governance in some of the entities, all of which could have their impact years down the line.

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