- October 7, 2017
- Posted by: Admin
- Category: Blogs
In 7 years, Microfinance Industry has gone from Nobel Peace Prize winning industry to the “Posterboy of Exploitation of Poor” and with the recent declaration of RBI Deputy Governor KC Chakraborthy stating that micro lenders may become irrelevant if if the banking systems are more efficient. By 2017, most of the top 10 microfinance companies turned into small banks and with the dissolving of Bharat Financial Inclusion into IndusInd Bank, it is happening already.
The business model is not to blame, it is still one of the lucrative ventures but the uncertainty of of the regulations and the government scheme of farm loan waivers keep it on the edge. This fragility of micro finances make them obsolete as it needs a huge financial backup, multi faced product fronts and assured product base, which they lack on account of being smaller in size.
Micro finance institutions are vulnerable to the market adversities and they can’t sustain the competition from the banking institutions. Hence, the banks are looking to partner with Microfinance Institutions either as subsidiaries or buying out their stakes. The current market is too hostile for independent Microfinancial Institutes.
On a pan-India scale, micro investors can only penetrate 20% of the total household market through various channels. They have catered significantly to over 4 crore Households and given the extent of financial exclusion they have more than 4 years of opportunities. But anything beyond that is nothing short of a miracle. In an independent study by World Bank, it is stated that 24% of the population of about 28 crore people in India still live below poverty line and has less than 50 rupees per day on purchasing power. The micro Financial Institutions have few more years for growth but the previous growth rate that varies between 50 to 80% will be history.
In today’s scenario, it is no obvious that microfinancing will happen only through banking channels. Following NBFC’s work as business correspondence, the signals are clear that Microfinance institutions now work through Banks now.
The sector needs a fresh equity of Rs. 1500 crore and the debt funding of Rs. 20,000 crore and a growth rate of 25%, and the number of NBFCMFs is very limited now. As a group, NBFC microfinance is the second largest provider with an outstanding loan of Rs. 32,820 crore, accounting for 31% of the entire microfinance profile.
The Key Takeaways of the current Microfinancing scenario are:
- 4 Crore Households received 6.3 crore micro-credit loans
- About 223 entities including NGO and societies operate in India
- 168 of them are registered with Sa-Dhan
- Micro loans outstanding as of June, 2017: about Rs. 1.20lakh crore excluding loans under bank-SHG model
- Banks share in micro loan 36%
- NBFC-MFIs’ share of micro loans 31%
- Small finance banks share of micro loans 27%
- NBFCs account for another 5% and non-profit MFIs account for 1%
- In addition, rupees 61580 crores were delivered under SHG program as on March 2017
Deals that happened in the last couple of years
- IDFC bank acquired a 9.99% stake in Asa International India microfinance
- DCB bank picked 5.81% equity in Annapurna microfinance
- Kotak Mahindra Bank acquired 99.5% in BSS microfinance
- IDFC bank acquired Grama Vidiyal microfinance
- Netherlands best Asian microfinance player CreditAccess Asia holds 99% in Grameen Koota
- Manappuram holds 90.38% in Asirvad microfinance