Bank funding to microfinance institutions (MFIs) is picking up again, albeit with some caution, according to sources.
It had dropped steeply following the crisis in Andhra Pradesh in 2010.
“In 2012-13, the risk perception towards the industry has moderated and banks and investors have been coming back,” said Alok Prasad, chief executive officer, MFIN (Micro Finance Institutions Network). He, however, cautioned that such funding was happening on a “selective basis.”
Nearly 90 per cent of the disbursals made by microfinance companies are funded by bank loans. So, any shrinkage in bank loans leads to a drop in the business of MFIs.
Total disbursements, which stood at Rs 32,400 crore in 2010-11, came down to Rs 20,000 crore in 2011-12 due to a virtual drying up of bank funding.
Bank lending to the sector, close to Rs 22,000 crore before the crisis, had dropped to Rs 13,000-14,000 crore after that , senior officials said.
In October 2010, a law passed in Andhra Pradesh laid down strict guidelines for MFIs after some borrowers killed themselves allegedly due to coercive loan collection methods.
Though latest figures are not available, however, the industry estimates bank funding to have increased to Rs 18,000 crore so far during this year.
RBI guidelines
The Reserve Bank of India’s move to recognise NBFC-MFIs as a distinct category of financial institutions and stipulating specific guidelines for the sector has helped reinforce banks’ confidence in the sector, senior officials said.
“The central bank’s mandate to treat these loans as priority sector lending is encouraging banks to lend to the sector,” said Chandra Shekhar Ghosh, Chairman and Managing Director, Bandhan Financial Services Ltd.
The Kolkata-based MFI has got sanctions worth Rs 2,550 crore, of which Rs 1,500 crore has already been disbursed.
Another MFI in the region, Village Financial Services, also got a sanction for Rs 200 crore this fiscal, compared with just about Rs 30 crore last year.
Though bank funding has improved, however, there is a heightened focus on governance and capital issues, Prasad said.
“Banks are sensitive to what happened in the past. Though funding has picked up on an aggregated basis, however, a number of MFIs are still finding it difficult to get loans,” he said.