SIDBI Foundation for Micro Credit

Q1. Are there any restrictions on Lending channels?
A1. There is no restriction on the MFIs as regards their lending methodology/ channels. MFIs may on-lend directly to SHGs / individuals or route their assistance through their partner NGOs and MFIs. In general, the assistance should be extended for non-farm income generating activities (IGAs). NBFCs should have been registered with RBI and obtained NBFC-MFI Registration Certificate. MFIs should not be in default to any Banks/ FIs.
Q2. What are the eligible activities for which SFMC provides financial assistance to MFIs?
A2. The loans under SIDBI’s Micro Credit Scheme (MCS) to ultimate borrowers of the MFIs would have to be utilized for financing micro enterprises and non-farm income generating activities including agri-allied activities. In view of the diverse needs of the poor, particularly in urban and semi-urban areas in service related activities where many of the NBFCs / new generation livelihood companies are working, the loan funds may be used for on-lending, inter alia, for activities such as to purchase / lease of renewable energy equipment, tool kits for masons/ servicemen, 2/3 wheelers for self-employed persons (for extending business reach, procurement of raw material, distribution of finished goods, etc.). Integrated / group projects involving animal husbandry, poultry, etc., along with related processing would also be eligible for assistance. In view of the composite requirements of the poor, loans to partner MFIs may also be used for on-lending for construction of new / renovation / expansion of dwelling units / dwelling unit-cum-work sheds, etc.
Q3. Where should SIDBI’s fund be deployed?
A 3. SIDBI’s assistance would be deployed only in urban / semi-urban areas as per existing classification by RBI, i.e., areas with population more than ten thousand or as stipulated by RBI from time to time.
Q4. What is the frequency and quantum of loan being provided to MFIs?
A4. SFMC may provide annual / need based, including repeat assistance to its partner MFIs. Loan assistance per MFI for on-lending is subject to a minimum of Rs.50 lakh.
Q5. Is there any ceiling on individual loan amount per borrower?
A5. As per extant RBI guidelines and guidelines stipulated by SIDBI under its scheme to MFIs, maximum amount lent by the MFIs to an individual borrower / SHG member must not exceed Rs. 60,000/- and Rs 1,00,000/- in the first and second cycle respectively, with a cap of Rs 1,00,000/- per borrower. This is subject to such modifications/amendments as may be stipulated by RBI from time to time.
Loan disbursed by an NBFC-MFI to a borrower should comply with the guidelines that a rural household annual income not to exceed Rs. 1,00,000/- or urban and semi-urban household income not to exceed Rs. 1,60,000/-.  
Q 6. What is the repayment period of loans to MFIs?

A6. Loan tenure of generally 18 - 36 months including initial moratorium of 3 to 6 months from date of first disbursement is granted. Principal installment and interest dues to be paid to SIDBI on monthly basis by the 10th of each month.

Q 7. What are the main legal requirements for the MFIs to avail financial assistance?

A 7. All forms of organizations, viz., NGOs, Societies, Trust, NBFCs, etc., are eligible to avail financial assistance from SIDBI. The Bye-laws / Charter should enable them to raise funds/ loans from Banks/ FIs. The Memorandum of Association and bye-laws of the NBFC-MFI should have explicit powers with regard to the following :-

  • Power to raise loans from banks and financial institutions.
  • Power to offer security for loans raised from banks and financial institutions in such form as may be required by the lender.
  • Power to carry on micro finance activities including on-lending to partner NGOs/MFIs / SHGs / JLG/individuals.
Q 8. How do eligible MFIs approach SIDBI for assistance?
A 8. The MFI can approach the nearest Branch Office of SIDBI for seeking assistance. For contact details of the BOs please visit SIDBI website (https://www.sidbi.in/contact_sfmc.php)
Q 9. What is the security stipulation under SIDBI MCS?
A 9. The minimum security stipulations are given below:
  • Exclusive first charge by way of hypothecation of book debts/ receivables created out of the assistance availed from SIDBI.
  • TDRs equivalent to 5%-10% of the loan is being obtained.
Q 10. What is the rate of interest?
A 10. Interest rates on SIDBI loans under MCS are linked to the External and Internal rating of the MFIs. Other external factors may affect the rate of interest to be charged on the loan amount.
Q 11. Can the MFI, extend support for farm/ agri based activities and still take loan from SIDBI?
A 11. Yes. However, the loan taken from SIDBI has to be specifically deployed towards activities as indicated at para 2 above.
Q 12. Does SIDBI insist on inclusion of Nominee Director in the governing Board/ Board of assisted MFI?
A 12. For exposure to an MFI above Rs.25 crore, SIDBI reserves the right to appoint Nominee Director in the governing Board/ Board of assisted MFI.
Q 13. What is COCA? Is it mandatory for seeking assistance from SIDBI?
A 13. Code of Conduct Assessment is a tool used for assessing MFIs’ degree of adherence to the voluntary microfinance Code of Conduct. One of the eligibility criteria for seeking assistance from SIDBI is that MFI should have undergone Code of Conduct Assessment (COCA) or agree to undergo COCA within 6 months from signing of the loan agreement by a service provider acknowledged/ empanelled by SIDBI.
Q 14. Which are the agencies that carry out COCA?
A 14. At present the following 5 agencies, which have been empanelled by SIDBI to carry out COCA: (1) M-Cril, (2) ICRA, (3) CRISIL (4) CARE and (5) SMERA.
Q 15. Are Capacity Assessment Rating (CAR) Report / MFI Grading Report mandatory?
A 15. Yes, MFIs must have a valid CAR/ Grading Report with investible grade from an accredited rating agency.
Q 16. Is it essential for NBFC-MFI to become a member of a Credit Information Company?
A 16. Yes. Every MFI need to be a member of all the four Credit Information Company (CIC) established under the CIC Regulation Act 2005, provide timely and accurate data to the CICs and use the data available with them to ensure compliance with the conditions regarding membership of SHG / JLG, level of indebtedness and sources of borrowing.
Q 17. Is it essential for an MFI to be a member of the Self Regulatory Organisation (SRO)?
A 17. Membership to the SRO is not mandatory. However, MFIs are encouraged to voluntarily become members of at least one SRO.