India: Micro Finance Companies Get Funds from Banks

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Mar 2016
India, March, 25 2016 - "With Bandhan leaving the MFI space, Rs 10,000 crore worth of priority sector loans was freed up and this amount is now channeled to other MFIs," said Ratna Vishwanathan, chief executive at Microfinance Institutions Network (MFIN), an industry association for the sector.

Microfinance institutions have never had it so good in the past six years, at least in terms of receiving funds. Banks have opened their purse strings to MFIs more than ever, with the sector showing steady traction backed by a strong regulatory framework.

More importantly, banks are liberally lending to the small and medium sized micro lenders after the transformation of Bandhan into a bank. Earlier, Bandhan used to grab a sizeable chunk of the of banks' priority sector loans received by the MFI sector.

"With Bandhan leaving the MFI space, Rs 10,000 crore worth of priority sector loans was freed up and this amount is now channeled to other MFIs," said Ratna Vishwanathan, chief executive at Microfinance Institutions Network (MFIN), an industry association for the sector.

MFIs' outstanding borrowings now stand at Rs 36,439 crore, representing an 86% growth, according to MFIN. In the third quarter itself, micro lenders received a total of Rs 9,121 crore debt funding from banks as well as other financial institutions which was 12% more than the year-ago period. Share non-bank funding has been increasing too and now accounts for almost 40% of the total debt funding. Securitisation of MFIs' portfolio grew by 41% than what it was in the third quarter of 2014-15.

"As Bandhan converted itself into a bank with eight others being on the verge of becoming small finance banks, existing banks are looking for the next level big players for lending," said MFIN president Manoj Kumar Nambiar.

Nambiar, who is also the managing director of Arohan Financial Services, said the MFI is carrying forward enough sanctioned loan limits to fund business for the first half next fiscal.

"Banks have turned receptive to the needs of the medium and small MFIs. The strong regulatory framework has made them more confident about lending to the sector," said Kuldip Maity, chief executive of Village Financial Services, which doubled its business to over 200 crore in the past one year.

The Kolkata-based MFI received about 94 crore bank loans this year, compared with 56 crore last year. Its outstanding debt stands at 200 crore. Uttrayan Financial Services managing director Kartick Biswas corroborated a similar view. Average cost of funds for large MFIs is 14.5% while that of for small and medium sized entities has been about 15.5%.

Aggregate gross loan portfolio of MFIs stood at Rs 42,331 crore at the end of December (excluding non-performing portfolio in Andhra Pradesh).

The number of beneficiaries of MFIs grew by a third to 2.88 crore. Average loan size for each beneficiary has also grown to Rs 17,917 compared with Rs 14,409 last year.



 

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