Andhra Pradesh, which brought an Act last year to regulate the MFIs, has sought the approval of the union government to float a non-banking financial institution dedicated to meet the microfinance needs of poor borrowers.

The proposed NBFC, which will have a wide institutional ownership with both the state and central governments as the key equity contributors, will act as a for-profit organisation for long-term sustainability, said a top bureaucrat.

“The proposed NBFC, which is aimed at replacing the MFIs and meeting the credit needs of poor borrowers, will charge a maximum of 15 per cent interest and will still make a profit,” said Reddy Subrahmanyam, principal secretary, rural development. Apart from the state and central governments, the equity partners of proposed NBFC would include Mandal Mahila Samakhyas, two of the state-based banks Andhra Bank and State Bank of India and National Bank for Agriculture and Rural Development.

AP minister for women development and Indira Kranthi Patham V Sunitha Lakshma Reddy said the state government expects the clearance and as well as funds from the central government for the proposed microfinance NBFC. B Rajsekhar, chief executive officer of Society for Elimination of Rural Poverty, said the NBFC would be floated on the lines of the detailed recommendations submitted by APMAS and Prof MS Sriram of Indian Institute of Management, Ahmadabad.

APMAS, a Hyderabad headquartered capacity building institution for self help groups, and Prof Sriram were mandated to prepare a feasibility report on the proposed NBFC.

APMAS has recommended that the organisation be set up as a for-profit corporation given the nature of activities proposed. “While the ownership and governance structure ensures that there would not be profiteering, given the growth imperatives and also the possible need for further capital infusion in case of need, it is best to put it in the fort-profit realm.”

The feasibility report has pointed out that the self help groups and the banking system are currently not geared up to fill the genuine gaps left by the MFIs in the state immediately wherein the gap was estimated at around Rs 4,000 crore.

Aimed at ensuring independence of the microfinance NBFC, it was recommended that neither the state nor central governments should have representatives on the board. The promoter banks (Andhra Bank, SBH and Nabard) and other institutional investors will have three representatives, while women SGHs will have three representatives on the board.

Rajsekhar said the microfinance NBFC would have an initial capital of around Rs 400 crore and mobilise borrowings from the banks and other financial institutions.