Faced with a liquidity crisis, micro-finance institutions (MFIs) are looking forward to consolidation to improve financial health as well as to conform to the proposed regulatory parameters. As an immediate measure, MFIs are exploring options to shore up their fee-based income through distribution of third party products.
Consolidation will be a complex process as most of these MFIs are promoter-owned, industry insiders say. “Mergers tend to be complex and involve whole range of issues. However, directionally, for the industry this may well be the way forward,” said Mr Alok Prasad, Chief Executive Officer, MFIN (Microfinance Institutions Network).
The industry plans to take a cue from the proposed merger of the three MFIs — Spandana Spoorthy, Share and Asmitha. “The three MFIs have sought RBI's nod for the merger. The process of consolidation will gather momentum if this merger comes through,” said Mr John Mayne, Managing Director, Anjali Microfinance.
Higher operational cost of MFIs due to an increased compliance requirement as laid out in the draft MFI Bill might drive the consolidation process, industry experts say.
Bank funding is the pre-requisite for any consolidation to happen, said Mr Suresh Krishna, Managing Director, Grameen Financial Services. “No mergers can happen without equity. There is a deadlock now, and players are in a wait-and-watch mode,” he added.
Though consolidation is staring at “our face on the balance sheet side, one has to see how to preserve the value in the sector,” said Mr Mathew Titus, Executive Director, Sa-Dhan.
Third party products
MFIs are also increasing their thrust on distribution of third party products for garnering additional sources of revenue. They are looking closely at the business correspondent (BC) model for remittance and insurance products, and have also launched a study to look at alternative business models, Mr Titus pointed out.
Distribution of third party products would help MFIs garner a fee income. Though it might not be able to solve the present problem, but it would certainly be the way forward, said Mr Shubhankar Sengupta, Managing Director, Arohan Financial Services Ltd.
Mr Amarnath Ananthanarayanan, Chief Executive Officer and Managing Director, Bharti AXA General Insurance, said, “Earlier MFIs were bundling up the insurance products with loans. The slowdown in loan off-take has also affected the insurance business thereby acting as a double whammy. However, now with loans drying up MFIs are looking at alternate models by pushing insurance products on a stand-alone basis. This will however take some time to pick up.”