Bandhan Microfinance to begin lending to smaller MFI’s

Bandhan Microfinance has announced that it plans to lend to smaller MFI’s in the region. Bandhan chairman and MD Chandra Shekhar Ghosh feels this move will help the smaller microfinance companies to survive in the competitive sector of microfinance. There are more than 800 MFIs in India and only the top few who have achieved scale manage to get loans from banks and finance institutions.

Speaking to the Mint , MD of Bandhan Microfinance Mr. Chandra Shekhar Ghosh said “Of course we will take a risk premium over our cost of funds and keep a margin, but it is not another business opportunity that we are exploring. It is just a helping hand to the smaller players who will have to pack up if they are not helped financially.”Bandhan Microfinance

The cost of loans for the bigger MFI’s in India, like Bandhan Microfinance is usually around 11 -12% , depending on the lending rate of banks. Bandhan plans to add 1-2% as risk margin and a few percentage points as profit before lending it to the smaller microfinance institutions.

Most of the big banks do not lend to the smaller MFI’s because the initial capital of these firms is very small and they are not able to get decent risk ratings from the rating agencies.

This move by Bandhan Microfinance will come as a boon to the smaller MFI’s who are facing difficulties in accessing funds and are at time being forced by commerical banks to reduce their lending rates.

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