Despite the controversy surrounding the Indian microfinance industry, the International Finance Corporation (IFC) has invested $30 million into microfinance institution (MFI) Bandhan. The Government of India’s draft Microfinance Institutions Bill 2011 is expected to provide more regulatory clarity for MFIs and will likely make the Central Bank the regulator of the sector.

By Arjun Kashyap MUMBAI, Sept 7 | Wed Sep 7, 2011 9:24am EDT

(Reuters) – Indian microfinance company Bandhan has raised 1.35 billion rupees ($30 million) from the International Finance Corp (IFC), a unit of the World Bank, in a private-equity deal, said a statement from Intellecap, which arranged the funding.

It is the single-largest investment by the IFC in India’s microfinance sector, the statement from the investment banking company added.

The funding could be seen as a vote of confidence in Indian microfinance firms, which continue to wait for bank funding to pick up after having suffered a dry spell that has lasted for almost a year.

“I feel the situation is improving steadily for the sector. There is equity flowing at least from the DFIs (development finance institutions) and banks are actually lending selectively, but not drastically,” said Atreya Rayaprolu, co-founder of Intellecap.

Andhra Pradesh, which was the largest market for MFIs in India, approved stringent legislation last October to regulate the industry following complaints about high interest rates, aggressive recovery practices and overextended borrowers.

A draft of the Microfinance Institutions Bill 2011, which is expected to provide relief in the form of regulatory certainty to the sector by appointing the country’s central bank as the sole regulator of the sector, is now with the central government and is expected to be tabled in the winter session of the parliament.  (Reporting by Arjun Kashyap, Editing by Aradhana Aravindan)