Transformation of Microfinance NGO into Non-Bank Financial Company (NBFC) : Potential, Scope and Challenges

This paper investigates the potential and scope of transformation of a Microfinance NGO into a NBFC. Conversion into a NBFC gives a Microfinance NGO greater credibility as it brings the Micro Finance Institution under the purview of Reserve Bank of India. Besides, being a corporate entity enables a Micro Finance Institution to access the capital markets for funds to scale up and not depend solely on bank lending, grants or donations. They are also allowed to raise savings from the member-borrowers.The major challenges to the successful provision of microfinance in India can be summarized as improving governance, professionalizing management, improving internal transparency, lowering costs, better targeting of the poor, expanding beyond credit to meet the diverse needs of borrowers, and a better financial infrastructure. The question of interest here is whether the transformation from an NGO to NBFC helps or hinders an MFI's ability to meet these challenges.This study explores the growth and status of Microfinance in India. It also throws light on the problems and the legal constraints faced by a Microfinance NGO's transformation to a NBFC and its feasibility