Pages From Budget 2012 Takeaway for MFIs

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    Budget 2012: Takeaway for Microfinance Institutions- Shadab Rizvi

    Microfinance Institutions were not expecting much from the Budget as the Regulator (andhence the Government) had already intervened positively on various issues many times thisFinancial Year. The only question that MFIs possibly wanted answered from the Budget

    Speech of the Finance Minister was the timing of the introduction of the much awaitedMicrofinance Bill. Though this wish was largely fulfilled, a few other announcements wouldhave surely caught the attention of the MFIs. Hereunder, we list out and discuss noteworthypoints for MFIs from the Budget Speech of the Finance Minister..

    Qualified Foreign Investors

    Qualified Foreign Investors (QFIs) will be allowed to access Indian Corporate Bond

    marketQFIs or simply Foreign Residents, Body Corporate and Associations are currently notallowed to access Indian Corporate Bond Market. With a view to widen the class of

    investors, attract more foreign funds to deepen the Indian capital market, the FinanceMinister has announced that QFIs can directly invest in Indian Corporate Bond market.

    This is positive news for MFIs as many Microfinance focused Foreign Individuals,Corporate and Associations either did not participate or had to resort to complex multi-nation structures so as to be able to invest in debt offerings of Indian MFIs.

    Also, the definition of QFIs is quite wide. The Mutual Fund Circular defines QFIs as aperson resident in a country that is compliant with Financial Action Task Force (FATF)standards and that is a signatory to International Organization of Securities Commission's(IOSCOs) Multilateral Memorandum of Understanding, provided that such person is not

    resident in India, provided further that such person is not registered with SEBI as ForeignInstitutional Investor or Sub-account. (Please note that QFIs have been already permittedto directly access Indian Equity and Mutual Fund market pursuant to the Budgetannouncement 2011-12).

    As a majority of the countries are compliant with the FATF standards and are the signatoriesto the IOSCOs multilateral memorandum of understanding, a large group of foreigninvestors will have direct access to the Indian Corporate Bond market and hence debtofferings of MFIs.

    Priority Sector Lending (PSL) Guidelines

    Revised guidelines on priority sector lending to be issued after stakeholder consultation

    Though the Finance Minister did not give a clear indication about the time by which the newguideline would be out, the mention of PSL guidelines in the Budget Speech reflects theseriousness of the regulator (and the Government) in this regard. Therefore, it would be safeto assume that most of the recommendations of the Nair Committee with regards to prioritysector lending will soon be incorporated (with minor changes) in the guidelines.