Microfinance Industry will one day be bigger than Retail Banking – Microfinance Digest

Given below are links to articles about microfinance and business developments in India that appeared in major publications and journals in the early part of June 2010.

Microfinance Could Be Bigger than Banking

Microfinance — making tiny loans to poor people or groups of poor people — has soared in India in the past few years. Before long, it could reach more people in India than the regular banking system.

That prediction came from Robert Annibale, global director of Citi Microfinance & Community Development at Citigroup Inc.Microfinance, whether from non-profits or for-profit financial companies reaches an estimated 70 million to 80 million people in India today compared with around 200 million for the regular branch-banking system.

But microfinance is growing faster than banking and, if the experience in other developing countries is mirrored here, microfinance “will reach more individuals than the banking sector,” Mr. Annibale told India Real Time. – Wall Street Journal

World Bank loan to boost Indian microfinance

The government on Tuesday approved a a proposal to draw a loan of $100 million (about Rs450 crore) from the World Bank to promote microfinance in the country.

The Cabinet Committee on Economic Affairs (CCEA) cleared the proposal for on-lending to the Small Industries Development Bank of India (Sidbi), which — in turn — would disburse the funds to the microfinance sector. Livemint.com

Microfinance in India – a guest post

Very few in India have the depth of understanding of rural India as Satyan Mishra has. He is the founder-CEO of Drishtee Development Communications. The business of Drishtee is rural supply-chain. When it comes to microfinance, Satyan is an outsider with a keen awareness of its working and some strong views on the sector, its contribution (or the lack of it) to rural India. When it comes to rural India, he is very much the insider.microfinance news in India

Recently, I met Satyan in Mumbai in May. Discussion turned to microfinance in India. The sector has been in the news lately, for both good and bad. Satyan, as usual, had passionate views. I encouraged him to put them down in paper. He had done so. I had edited it for space and readability. But, the thoughts are entirely his. National Interest

The Impact of Microfinance – Grameen Foundation provides a Primer

What’s the impact of microfinance? A question with 150 million answers, one for every client around the world who receives microfinance services.

Academics who wield sophisticated statistical tools to assess complex social phenomena like microfinance give answers with more precision, but they don’t always spend much time explaining their results to a broader public. And the press likes to give stories hard-hitting headlines whenever they can. Outcome: much of what the public reads in the press does not accurately reflect the studies. The press take on the most recent raft of studies about microfinance caused heartburn among both microfinance promoters and academics, as Nicholas Kristof reported in his New York Times blog. Huffington Post

NBFCs brace for rise in cost of funds

Will be forced to pass on higher rates if banks’ base rate is set close to 8.5%.

Non-banking finance companies (NBFCs) are bracing themselves for a possible increase in cost of funds as banks move to a new system of lending with reference to base rates. NBFCs, which compete with banks in certain sectors but also rely on term loans from banks for a bulk of their funding needs, say any increase in their cost of funds may have to be passed on to customers.

From July 1, the benchmark prime lending rate system will cease to exist and banks will shift to a base rate regime. The latter will be the floor rate, except for specified categories. Although banks have not decided their respective base rates so far, a few large state-owned lenders have indicated their base rates will be in the 7.5-8.5 per cent range. Business Standard

Non Banking Finance Companies heave a sigh of relief

Insurance firms and non-banking finance companies (NBFCs) are heaving a sigh of relief as the revised draft of the Direct Taxes Code (DTC) has suggested that book profits rather than gross assets be used to calculate the minimum alternate tax, or MAT, for both groups.

In addition, life insurance products will be subject to the exempt exempt exempt (EEE) regime. Earlier, the proposal was to link MAT with gross assets for all firms except banks. The first version of the draft DTC recommended that all companies including insurance and NBFCs pay 2 per cent of their gross assets as MAT.Business Standard

Microfinance: Risky and Expensive

Private equity investments have put a premium on the valuation of microfinance companies when maybe they should be giving them a discount.

Women exchange money at a micro-finance group meeting in Habibnagar, Andhra Pradesh.
Yes, the tiny-loan business is booming, but it is much riskier than the low default rates of the business would suggest, said Avnish Bajaj, managing director of Matrix Partners India which has an investment in one of India’s largest microfinance institutions.

“There are elements of bubble in this sector,” he told a conference on money-raising for microfinance in New Delhi. (The WSJ is a conference media partner.) “Over-lending, lack of processes, excessive geographical concentration and excessive product concentration,” all make it a risky business in which to invest. Wall Street Journal

Finding the Next Micro Opportunity

The booming global microfinance industry has to do more to diversify, not only to keep its companies healthy and growing but also to improve the lives of its growing customer base of poor people.

The last five years have shown that $100 loans to micro entrepreneurs can be a huge, profitable business that helps millions that were previously largely ignored by the global economy.

A panel of investors at a conference in New Delhi entitled “Microfinance: Cracking the Capital Markets,” said they now want to see microfinance companies diversify. Wall Street Journal

MFIN appoints Alok Prasad as CEO

MFIN, the self regulatory organization of 37 NBFC MFIs, has appointed Alok Prasad, a veteran banker, as CEO.

Alok brings with him over 30 years of banking and financial services experience. He also brings with him a unique blend of working across both the public and private sectors. India Infoline

Microfinance emerges beyond conventional markets

Offbeat financal avenues find buyers slowly but steadily. With the global meltdown behind, European debt crisis ahead, global economists are busy pondering new sectors like microfinance, carbon finance, water credit and so on to find hope for market expansion.

Even the World Bank in its latest Global Economic Prospects 2010 report was circumspect about global recovery when it said Europe’s debt crisis is likely to hamper global economic recovery. The report projects global GDP to expand between 2.9 in 2010 and 3.3 percent in 2011, gradually strengthening between 3.2 and 3.5 percent in 2012, but not sufficient to offset the 2.1 percent decline in 2009.

Turning its attention to developing economies, the report projected them to grow between 5.7 and 6.2 percent each year from 2010-2012 compared to high-income countries which are projected to grow between 2.1 and 2.3 percent in 2010 — not enough to undo the 3.3 percent contraction in 2009 — followed by 1.9 to 2.4 percent growth in 2011. ibtimes.com

Threat of Microfinance Defaults Rise in India as SKS Plans IPO

Savita Ramesh Rathore stood at the door to her dimly lit workshop in Mumbai’s Dharavi slum, filled floor-to-ceiling with bundles of old clothes, and tallied up the cost of her son’s wedding last year.

“Jewels, clothes, food, the town hall,” said Rathore, 50, who makes towels from discarded clothes. She borrowed 30,000 rupees ($645) from moneylenders charging 60 percent interest and took additional loans from friends to pay for the wedding. Three months ago, she got a 10,000 rupee loan from urban lender Hindusthan Microfinance Pvt. to repay some of that debt. Bloomberg

Interview with Janata Loans Founder Sunny Mahant

Sunny Mahant had been working as a product marketing manager for nine years at Cisco when he experienced an epiphany on a trip to India.

On that trip, Mahant and his wife, photographer Geidre Nakutyte, witnessed firsthand the brutish conditions under which very young children work in India, and the extreme poverty suffered by their families. He came home determined to make a difference in the lives of young Indians.

“If we’re going to solve the poverty issue in India, it has to come through education,” Mahant told India-West. “You cannot have a high rate of illiteracy and prosperity at the same time,” he said, noting that three quarters of the country’s population still live in abject poverty, despite India’s double-digit economic growth rate, an inequity he believes is unsustainable over the long term. Indiawest.com

Mann Deshi Bank: An amazing success!

his is an extraordinary story of women’s empowerment in rural India. Women in Satara district in Maharashtra run a bank and a B-school successfully.

Founded by Chetna Gala Sinha, the Mann Deshi Mahila Sahakari Bank was formed with the active participation of illiterate, rural women in 1997.

It was a struggle against all odds for Chetna Sinha who wanted rural women to be financially independent. The women needed to be removed from the shackles of poverty and money lenders in the drought-prone areas of Satara district in Maharashtra.

Money was the root cause of all their troubles. Finally, the relentless efforts of 500 rural women led to the mobilisation of a shareholder capital of Rs 600,000 to start their own financial institution. Rediff

LIC Housing appoints CEO of Rs 500 cr venture fund

LIC Housing Finance’s (LICHF’s) diversification juggernaut is finally rolling with a proposed venture capital fund. The LIC subsidiary is set to raise its first funds of around Rs 500 crore from September 2010.

To start with, Arun Goel has been appointed as LIC Venture Fund’s CEO. Goel is the former CEO of Venture Capital arm of Dewan Housing Financial. Business Standard

Farm loans to banks by microfinance firms see big spurt

Indian banks are increasingly buying loans from microfinance institutions (MFIs) to fulfil their regulatory requirement of advancing at least 40% of their total loans to the priority sector, which includes small farmers and small businesses.

Almost all MFIs sold more loans to banks in fiscal 2010 than they did in the previous year, industry officials said. The spurt in sales of loans to banks was remarkable for firms such as Share Microfin Ltd, Bandhan Financial Services Ltd and Equitas Micro Finance Co. (India) Pvt. Ltd. Livemint.com

Regulating microfinance
Regulation is necessary for a growing, complex sector such as microfinance. But the wrong kind of control can hamper its growth

In 2005, then Reserve Bank of India governor Y.V. Reddy summed up the central bank’s approach to microfinance when he said regulating the industry would militate against its core spirit—informality and flexibility—that had served it so well. Five years later, as a microfinance Bill remains stalled, that regulatory gap still exists.

It is perhaps because of this lack of oversight that the Andhra Pradesh and Kerala governments have sought to bring some microfinance institutions (MFIs) in these states under local moneylending norms. As The Economic Times reported last week, the intent has been to control the rates of interest charged on microloans to the poor. Livemint.com

Pipe dreams come true – SHG’s are changing the lives of rural women

Asha Pande had spent hours queuing up with her neighbours to fetch water from a public tap at her slum in Dahegaon Rangari in Koradi, near Nagpur. Squabbles frequently erupted as the water supply turned erratic. She resolved to undertake a gruelling 6-km journey every day to draw water from the Kolar river, but this exacerbated her backache.

An overexerted Asha was unable to work regularly and her family’s financial woes deepened. It was at this juncture that she applied for water credit by joining a self-help group run by ESAF, a microfinance institution which partners Water.org. A water pipe was installed at her home and she was able to supplement her family’s income like she used to earlier. Hindu business line.com

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