Govt to set up two funds on microfinance

The government on Tuesday said it will set up two funds of Rs 500 crore (Rs 5 billion) each to facilitate easy credit availability to the poor.

"Based on the interim report (of the Financial Inclusion Committee), we have decided to set up two funds - Financial Inclusion Fund and Financial Inclusion Technology Fund of Rs 500 crore each," Finance Minister P Chidambaram said at a conference on microfinance.

The government will implement recommendations of the committee chaired by Dr C Rangarajan, chairman of the Economic Advisory Council, to the prime minister, when it submits the final report, he added.

A Rs 100-crore (Rs 1 billion) microfinance development fund has alreadybeen

set up by the Centre.

The finance minister said there is no clarity on the government role in the microfinance sector.

"It is not yet clear what should the government do, what shouldn't the government do, what should the government regulate and what it shouldn't regulate," he said.

The government has introduced a Micro Finance Bill in Parliament to regulate non-profit microfinance institutions.

Chidambaram also said that although the goal of all microfinance institutions is the same -- that to provide credit to the poor, organisations operate on different principles.

Organisations which operate for profits want interest rates to be higher so as to recover the costs, he specified.