Tag: micro-finance

Sidbi launches various MSME cluster development focused initiatives, BFSI News, ET BFSI

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NEW DELHI: Small Industries Development Bank of India (SIDBI) on Monday said it has launched various micro, small and medium enterprises (MSMEs) cluster development focussed initiatives.

SIDBI has been supporting MSMEs through its focused cluster development initiatives such as support for technology upgradation/modernisation, skilling/re-skilling/up-skilling and market linkages.

The cluster development strategy of SIDBI has gradually evolved over a period of time and it now caters to over 600 MSME clusters through its offices and supports the entire value chain (Micro Finance, Missing Middle and Small and Medium Enterprises), the financial institution said in a statement.

Some of the unique engagements in clusters include EU Switch Asia in 18 clusters of 9 states, cluster outreach programmes followed by setting up of Project Management Unit (PMU) in 11 states with thrust on clusters and state cooperation, State Rural Livelihood Missions (SRLM), Artisanal Cluster and Engagement in One District One Product (ODOP) districts of Uttar Pradesh, it said.

The principal financial institution engaged in the promotion, financing and development of MSMEs has been regularly bringing publication, policy papers etc on MSME development.

Financial Services Secretary Debasish Panda launched the first information series titled as ‘Diagnostic Mapping of Cluster- Charting the Path ahead through Intervention’. Additional Secretary in Department of Financial Services (DFS) Pankaj Jain and Joint Secretary in DFS Madnesh Kumar Mishra were also present on the occasion.

The book marks the commencement of focussed attention of SIDBI on clustering strategy aimed towards building and supporting sustainable growth of MSMEs. “It compiles the findings that emerged out of diagnostic studies in 30 clusters. It contains recommendations and action plan for financial and non-financial issues, interventions suggested at the policy, cluster and unit level,” it said.

SIDBI is geared up to undertake diagnostics of 100 clusters and plan engagement in 15 clusters. On this occasion, SIDBI Chairman and Managing Director S Ramann said, the financial institution has identified a multi-pronged strategy to impact local, regional, national and global value chain through MSE clusters.

“We are giving a thrust to hard infrastructure support to state governments. DFS and Reserve Bank of India have supported us in setting up the SIDBI Cluster Development Fund,” Ramann said.

The soft infrastructure engagement shall complement the hard infrastructure, he said. “In line with cluster experts we have initiated the mapping exercise of 100 clusters such that the implementation by SIDBI and other institutions can lead to sustainable growth of clusters,” he said.

Since the typology of cluster development generally involves hard and soft infrastructure aspects, to address the soft infrastructure aspects, SIDBI has launched the Business Development Services intervention programme in 5 Clusters (Tourism Cluster – Jammu & Kashmir; Delhi-NCR Innovation Cluster; Jodhpur Wood Furniture Cluster, Sambalpur Textile Cluster, Chennai Leather Cluster).

The holistic aim of the intervention is to strengthen Clusters to evolve as model Clusters and also to increase MSMEs’ access to services thus rising up the value chain.



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MFIs welcome Rs 7,500-crore credit guarantee scheme

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MFIN CEO and director Alok Misra said the credit guarantee scheme to MFIs would play a catalytic role in facilitating credit to MFIs and their customers in these difficult times.

As finance minister Nirmala Sitharaman on Monday announced a Rs 7,500-crore credit guarantee scheme for microfinance institutions (MFIs) as economic relief from the pandemic, microfinance players and industry bodies said the scheme would play a catalytic role in facilitating credit to MFIs and their customers as banks would have comfort to lend to the micro-lenders at reasonable rates during the present challenging times.

Village Financial Services MD & CEO Kuldip Maity said, “We welcome the initiative announced by the finance minister to facilitate loans to bottom of the pyramid borrowers through microfinance institutions. The move will benefit both the NBFC-MFIs and their borrowers in these tough times as the disbursements by MFIs have taken a hit because of cash flow issues, which eventually left borrowers in distress as they were unable to carry on their income generating activities due to lack of funds. .”

MFIN CEO and director Alok Misra said the credit guarantee scheme to MFIs would play a catalytic role in facilitating credit to MFIs and their customers in these difficult times.

“Of special mention is the coverage of term loans from scheduled commercial banks to MFIs unlike only CPs/NCDs in last year’s scheme, which will allow smaller MFIs to be covered. Other specific measures introduced in the scheme in terms of eligibility of standard customers, pricing directions, focus on new lending and guarantee up to 75% of default amount will ensure that scheme benefits the micro-finance customers in a substantive way.”

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Uniform rule for MFIs may lead to competitive loan pricing

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While the focus of the paper appeared on over-indebtedness and pricing gaps, there are some challenges to actual on-the-ground implementation of some recommendations, Edelweiss Research said.

The Reserve Bank of India’s proposed framework for harmonising the regulatory frameworks for various regulated lenders in the microfinance space is expected to help the market expand its size, and lead to more “responsible lending” and “market-driven” pricing of loans because of competitions.

It would, however, remain to be seen that how would removing the margin cap for NBFC-MFIs lead to a reduction in interest rates for the borrowers, if the suggestions are implemented, according to industry observers. There could be some challenges to actual on-the-ground implementation of some of the recommendations.

The suggested framework in the Consultative Document on Regulation of Microfinance has proposed to introduce a common definition of microfinance loans for all regulated entities, capping the outflow on account of repayment of loan obligations of a household to a percentage of the household income, a board approved policy for household income assessment, alignment of pricing guidelines for NBFC-MFIs with guidelines for NBFCs and introduction of a standard simplified fact sheet on pricing of microfinance loans for better transparency.

“A uniform regulatory framework for the microfinance sector will ensure a level playing field among all regulated players. It is a very good move to cap the borrowers’ indebtedness at 50% of household income. Removal of margin cap for NBFC-MFIs and two lenders cap for these entities will help the market expand,” said Chandra Shekhar Ghosh, MD and CEO, Bandhan Bank.

Credit rating agency Icra said the proposed regulations aimed at providing more flexibility to non-banking finance companies-microfinance institutions (NBFC-MFIs) in the pricing of loans; however, they would need to have board-approved policies and enhanced disclosures.

“The removal of the interest rate ceilings is expected to make the players compete on the pricing of loans. We expects the market forces to work to benefit the borrowers in the long-term but because of the borrowers being less sensitive to interest rate, transmission of the same from lenders may take time,” Sachin Sachdeva, vice-president and sector head, Financial Sector Ratings, Icra, told FE.

Capping the borrowers’ indebtedness at 50% of household income in rural and urban/semi-urban areas may impact the overall credit growth in the microfinance industry. “With a cap on the fixed obligation to income ratio at 50% and while meeting the household income criteria of Rs 1,25,000 and Rs 2,00,000 for rural and urban/semi-urban areas, respectively, the maximum permissible indebtedness of rural microfinance borrowers could be lower than the current levels unless the tenor is extended (currently about 24 months), while the same could increase for urban/semi-urban areas. This may impact the overall credit growth in the industry,” Sachdeva added.

Talking to FE, Ujjivan Small Finance Bank MD & CEO Nitin Chugh said the RBI’s recommendations, if implemented, would ensure far better responsible lending in the microfinance space. “This will certainly be a good long-term benefit for both the borrowers and the industry players. It is unlikely that there could be a misuse of flexible pricing guidelines for NBFC-MFIs because pricing of loans would be market-driven on the back of competitions. Level playing field for market participants will ensure market size expansion,” Chugh said.

While the focus of the paper appeared on over-indebtedness and pricing gaps, there are some challenges to actual on-the-ground implementation of some recommendations, Edelweiss Research said.

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CreditAccess Grameen’s collection improves to 94% in Jan-March quarter

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CreditAccess Grameen, a NBFC-MFI, said its collection efficiency (loan EMIs collected from women borrowers) as also its year-on-year (YoY) and quarter-on-quarter (QoQ) loan disbursement (microfinance loans given to women borrowers) has improved during the January to March 2021 quarter.

The company in a release said it YoY and also QoQ consolidated disbursement has risen by 42 per cent and 3 per cent to ₹4,726 crore, respectively in January to March 2021 quarter. The collection efficiency for CAGL, too, has risen from 91 per cent in December 2020 to 94 per cent in March 2021 and for its subsidiary Madura Microfinance, collection efficiency increased from 86 per cent in December 2020 to 90 per cent in March 2021.

The number of women customers fully paying their loan instalments, has risen to 92.4 per cent in March 2021 for the company, as compared to 88.1 per cent in December 2020. The percentage of women customers not paying their EMIs, for the company, has come down to 4.4 per cent in March 2021 compared to 5.1 per cent in December 2020.

Active borrowers

The performance is on the back of a number of active borrowers rising to 29.63 lakhs for the company and 10.98 lakhs for its subsidiary. The new borrower addition during the January to March 2021 quarter, too, has seen a healthy rise to 2.88 lakhs on a consolidated basis. The consolidated Gross Loan Portfolio, too, has increased YoY by 16 per cent and QoQ by 13 per cent to ₹13,878 crore.

Owing to improved performance, the overall portfolio at risk for 30 days, 60 days and 90 days, has seen gradual decline to 6.6 per cent, 5.9 per cent and 5.4 per cent, respectively for the company as on March 31, 2021.

Regarding its subsidiary Madura Microfinance, the overall portfolio at risk for 30 days, 60 days and 90 days, gradually declined to 9.7 per cent, 6.7 per cent and 4.7 per cent, respectively on March 31, 2021. The restructured book amounts to ₹75 crore (0.6 per cent of GLP) as on March 2021 for CreditAccess Grameen.

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Microfinance disbursements almost at pre-Covid levels: MFIN

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Among the top 10 states, West Bengal has the highest average loan outstanding per unique borrower at Rs 55,585, followed by Assam at Rs 48,578.

Microfinance loan disbursements are reaching almost at pre-Covid levels backed by increased demand, with the gross loan portfolio (GLP) of NBFC-MFIs growing around 11% year-on-year in the third quarter this fiscal, microfinance industry association MFIN said on Monday.

MFIN said gross loan portfolio of non-banking financial companies-microfinance institutions (NBFC-MFIs) stood at Rs 74,712 crore as on December 31, 2020, compared with Rs 67,255 crore in the year-ago period. Microfinance industry’s gross loan portfolio in the third quarter of FY21 witnessed an increase of 10.1% y-o-y at Rs 2,32,648 crore.

“Fourteen banks hold the largest share of the portfolio in micro-credit with a total loan outstanding of Rs 97,956 crore, which is 42.10% of total microcredit universe. NBFC-MFIs are the second-largest provider of microcredit with a loan amount outstanding of Rs 72,128 crore, accounting for 31% of the total industry portfolio. SFBs (small finance banks) have a total loan amount outstanding of Rs 39,062 crore with a total share of 16.79%. NBFCs account for another 9.06% and other MFIs account for 1.04% of the universe,” the industry association said.

The top 10 states (based on universe data) constitute 82.16% in terms of GLP. West Bengal has regained its spot as the largest state in terms of portfolio outstanding, followed by Tamil Nadu and Bihar. Among the top 10 states, West Bengal has the highest average loan outstanding per unique borrower at Rs 55,585, followed by Assam at Rs 48,578.

Alok Misra, CEO & director, MFIN, said: “It is heartening that the green shoots seen at the end of Q2 have proved to be true and sector disbursements are reaching almost at pre-Covid levels, backed by increased demand for loans to restart livelihoods. The disbursements during Q3FY21 are around 96% of Q3FY20, indicating that it should reach normal levels by the end of Q4FY20-21.”

Lenders and investors continued to show full confidence in the microfinance sector as evident by the debt funding going up 10.4% as compared to the previous quarter and equity moving up 16.6% compared to corresponding quarter last year, Misra said.

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‘In Q4, we are looking at growing the business, but methodically’

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The micro-finance sector is showing signs of improvement barring some lagging areas and customer sets. However, there is demand for credit, said Nitin Chugh, Managing Director and CEO, Ujjivan Small Finance Bank. In an interview with BusinessLine, he also spoke on the new products the bank is working on and discussed the third quarter results. Excerpts:

How is the micro-finance sector doing now?

In general things have improved, which is coming up in the collection efficiency of 94 per cent to 95 per cent. We had reported in our second quarter results that we have problems in Maharashtra, Punjab, and West Bengal, and haven’t come back to the pre-Covid level. In Assam, while things were improving, we have had a setback in January due to the loan waiver announcement by political parties, and (that) has resulted in 9 per cent drop in collection efficiency (during the month).

Even in customer segments, there is some divergence. Customers with general stores, and dairy were able to come back rather quickly. Those in small-scale manufacturing are taking longer to come back. Customers like housemaids, drivers, restaurant staff and mall workers were impacted for a much longer time.

Also read: Ujjivan SFB reports net loss of ₹279 cr in Q3

How has the restructuring process been?

You can’t expect or even plan for such things. The moratorium got over on August 31, 2020. September was the first month when customers started making payments. We had a collection efficiency of 83 per cent for payments, which improved to 88 per cent in October. But there are customers who are finding it difficult to pay after the moratorium got over. The whole estimation process started from October; we started talking to customers and did a full detailed survey. We spent December holding individual conversations and completing the whole process.

How is credit demand? You have reported strong disbursement in the third quarter.

Credit demand has started to come back as people started going back to their livelihoods.

Disbursement is even stronger in January. Demand is from all across. We did our highest ever in January in the affordable housing business. In MSME also, we did our ever highest in January. In micro-banking, we are back to pre-Covid level and exactly what we were in January 2020. In fact, in December 2020, we did even better than December 2019 in micro-finance. Likewise in vehicle finance. In the fourth quarter, we are looking at growing the business now but doing it methodically with the appetite for risk that we have.

You are working on gold loans…?

We are still learning the business. We are in pilot stage right now. We started in October with five branches, all of them in Bangalore. The first two months were not very remarkable as we were trying to do this more through word of mouth. We will launch it at scale in the next fiscal year. It is an unmet demand of our customers.

Also read: Assam MFI Bill may hit collections in short term

Any other new areas of lending?

In vehicle finance, we are testing MMCV (micro and mini commercial vehicle) loans. We are likely to make an entry into that segment. We were also evaluating the used car segments but with the Budget announcements on voluntary scrapping policy, we need to do some rethink on that. The segment of customers we deal with, they usually buy five- to seven-year-old vehicles and they buy them for a long period of time.

We are also looking to introduce credit cards in the next financial year. We have a substantially large base of retail, non-micro-finance customers. We have a large base with close to a million customers and the demand for these products is coming from them. We will also look at any other relevant product. Also, maybe lockers in a few of our branches.

Are you worried about stress on your books?

Now, we are not. We have taken all provisions upfront in the third quarter. Stress is emerging right now, the NPAs are at a standstill. We already had a cover on our books of 4.1 per cent to 4.2 per cent in the last quarter. It wasn’t that we were not adequately covered, we had taken provisions in the last three quarters also. We took the decision to upfront everything. Let us not live with any uncertainty and not worry about future credit loss, so that we can focus on growth.

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