Microfinance

Big microfinance firms taking over clients of smaller players

Microcredit extended in India today stands at $5 billion, while demand is for $55 billion

Anita Bhoir

Mumbai: SKS Microfinance Pvt. Ltd, a non-banking finance company (NBFC) that operates in the microfinance space, is acquiring customers of smaller firms in the business that are finding it difficult to lend as they have no money.

Microfinance refers to the business of lending money to poor or low-income clients.
SKS founder and chief executive officer Vikram Akula sees consolidation in the industry as the liquidity crunch intensifies. Early this month, SKS raised $75 million (more than Rs375 crore today) from Sandstone Capital Llc.—the largest private equity investment in microfinance, globally.

According to Akula, small and medium microfinance institutions (MFIs) are finding it difficult to raise funds. “In the current environment, capital is flowing to quality and this is affecting the small and medium MFIs,” he said. However, Mint could not independently verify this.

“Banks are lending only to large MFIs. We are in a strong position. We are holding discussions with MFIs who are facing strain and helping them by taking over their clients,” said Akula.
According to him, many small players may have to close shop as they have no money to lend.
“In the next one year, we would see lesser number of MFIs,” Akula said.
There are about 1,000 MFIs in India and close to 90% of these serve less than 10,000 clients each, according to a recent industry study.

SKS caters to the needs of 3.4 million consumers through its 1,500 branches.
Currently, microcredit extended by MFIs in India stands at $5 billion while the demand for microcredit in the country is $55 billion, said a recent World Bank report Maturing of Indian Microfinance.

Akula said that the Reserve Bank of India (RBI) should permit NBFCs to act as business correspondents to enable credit penetration.RBI’s guidelines on business correspondents allow banks to use MFIs to market their deposit and loan products, but NBFCs are not allowed to do so.
“The business correspondent restriction should be applied to NBFCs owned by banks and not for MFI-NBFCs. The loan ticket size can also be restricted to Rs25,000,” Akula said.

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