Following the announcement a new micro finance initiative by Ratan Tata, Nandan Nilekani and Vijay Kelkar, this Economic Times Editorial, " Why small banking makes big sense", maintains that despite the failures in the Micro-finance space in recent years, the idea still hold promise in reaching out to the unbanked populations. Short except from the article is below:
"...the logic of lending small is intact. From 2014, the RBI has stepped in, replacing an arbitrary 26 per cent ceiling on interest rates with a 10 per cent cushion between MFIs’ borrowing and lending costs, doubling individual borrowing limits and ticket size per loan. Some MFIs have converted to small finance banks (SFBs), lowering the cost of funds. Analysts reckon that with an overall book size of around Rs 58 lakh crore now, MFIs and SFBs are now where housing finance companies were in 2001, with room to grow. These are positives for Avanti and similar ventures, if they manage to sidestep banana peels. Their success would dent poverty and boost growth."
Read the full text of the article here