SFMC

SIDBI Foundation for Micro Credit (SFMC) was launched by the Bank in January 1999 for channelizing funds to the poor in line with the success of pilot phase of Micro Credit Scheme.

Mission

SFMC's mission is to create a national network of strong, viable and sustainable Micro Finance Institutions (MFIs) for providing micro finance services to the economically disadvantaged people, especially women.

Approach

SFMC is the apex wholesaler for micro finance in India providing a complete range of financial and non-financial services such as loan funds, grant support, equity and institution building support to the retailing Micro Finance Institutions (MFIs) so as to facilitate their development into financially sustainable entities, besides developing a network of service providers for the sector. SFMC is also playing significant role in advocating appropriate policies and regulations and to act as a platform for exchange of information across the sector. The launch of SFMC by SIDBI has been with a clear focus and strategy to make it as the main purveyor of micro finance in the country. Operations of SFMC in the coming years, are expected to contribute significantly towards development of a more formal, extensive and effective micro finance sector serving the poor in India with focus on innovation and action research.

Rating of MFIs

Most micro finance programmes were initially operated by NGOs and were not subjected to regulation and supervision as they were registered as Societies or Trusts. Non-regulation of these institutions worked to their detriment and these institutions were not able to have smooth access to funds from the financial sector which was vary of lending to such entities. This constraint, coupled with the fact that SFMC was launched with a view to upscale the flow of micro credit with enabling policy modifications relating to simplification of the procedures in availment of assistance and substantial relaxation in the security/ collateral requirement posed a difficult challenge. Therefore, to meet the requirements of the revised dispensation which called for selection of suitable micro finance intermediaries which could be trusted with bulk assistance without collateral constraints, Capacity Assessment Rating [CAR] was introduced by SFMC as a supplementary tool to assess the risk perception. On SFMC's initiative, rating of MFIs was started by five agencies. With the passage of time, and ripening of the sector, most of the informal NGOs have transformed into formal NBFCs. Rating of MFIs has gained sector-wide acceptance and has become a pre requisite for getting assistance from the banks/ financial institutions.

Code of Conduct Assessments (COCA)

SIDBI has helped develop a Code of Conduct Assessment Tool, which applies to providing credit services, recovery of credit, collection of thrift, etc., for MFIs to assess their degree of adherence to the voluntary microfinance Code of Conduct formulated by the MFIs. 75 COCA have since been completed and reports of 68 hosted on SIDBI website.

Financial Assistance

Micro finance - MFIs are provided annual need based assistance. One of the unique features of the scheme is the comprehensive financial support being provided to the MFIs/ NGOs to expand their operations as well as to increase their efficiency. SIDBI’s support comprises of loans as well as equity/ quasi equity support, as the case may be, depending on the need of the client institutions.

Missing Middle Segment - SIDBI has also been extending financial assistance for the Missing Middle Segment of the micro enterprises. In India, ‘Missing Middle’ connotes the financing gap that lies above micro-finance loans and below traditional institutional financing i.e., loans with financial volumes ranging from INR 50,000 to INR 10 lakh. The support under this scheme is channelized through Participating Financial Institutions (NBFCs, RRBs, UCBs, MFIs, etc.).
 

Minimal Security Requirement

Credit worthiness is based on the rating of the borrowing institutions rather than availability of security/ collateral requirements. Term Deposit Receipts (TDRs) issued by Scheduled Commercial Banks/ SIDBI for an amount equivalent to 10% /5% are taken (depending upon geographical area of operation, categories of beneficiaries supported and duration of partnership of the MFI with SIDBI etc.).

Portfolio Risk Fund (PRF)

Portfolio Risk Fund (PRF) was created by SIDBI with funding support from Government of India and made operational since March 2004. Normally, the Bank stipulates security requirement of FDRs equivalent of up to 10% of the loan sanctioned to MFIs under SFMC dispensation. Once the case is covered under PRF, 75% of security requirement (i.e.7.5% of the loan amount) is booked under PRF and balance 25% (i.e. 2.5% of the loan amount) only is to be furnished by the individual MFI by way of FDRs.

Methodology Neutral

SIDBI's support is not for any specific methodology. MFIs may on lend to Self Help Groups/Joint Liability Groups/individuals. They may also adopt any other lending channel so as to effectively reach financial assistance to the poor clients.

Capacity Building Support for the sector

SFMC's capacity building efforts are directed not only towards MFIs but also towards smaller/ grassroot institutions engaged in micro finance operations, training, consultancy, rating and impact assessment, etc., and other service providers in the form of training, seminars, workshops, orientation and exposure visits.

Responsible Finance Initiatives

SIDBI has been playing a pro-active role in propagating Responsible Finance in the MFI sector. The major initiatives taken by SIDBI in the field of Responsible Finance Practices are –
• Creation of a Lenders’ Forum
• Laying down standards for the sector through measures like concept of risk rating, portfolio audits, system audits, etc.
• Carrying out Sectoral Studies/ Impact Studies
• Creating awareness about Clients’ Protection Practices
• Facilitating Development of a common code of conduct for the MFIs and ensuring adherence thereof through COCA exercise by accredited third party agencies.

India Microfinance Equity Fund (IMEF)

To ease the tight liquidity situation, in the FY 2012, GoI stepped in with creation of a Rs.100 crore Fund viz., IMEF, operated through SIDBI, to strengthen capitalization of smaller, socially oriented MFIs, especially in underserved states/areas. The allocation under IMEF has been increased by Rs. 200 crore in FY 2013-14. The assistance under the Fund is expected to help the MFIs leverage more debt funds from the banks and financial institutions and help in increased flow of assistance to the poor in the unserved/underserved areas of the country.

IMEF - Scheme Guidelines