The West Bengal chapter of the Association of Micro Finance Institutions (AMFI-WB) feels there is an urgent need to promote domestic equity participation in the Indian microfinance sector. Getting domestic equity will also help the industry tide over the current liquidity crunch due to banks going slow on lending to the sector.
According to Kartick Biswas, Secretary, AMFI-WB, and MD, Uttarayan Financial Services, while bank lending needs to pick up, however, there is also an urgent need to promote domestic equity in the MFI sector. As on September 30, 2019, NBFC-MFIs have total asset base of ₹61,855 crore and outstanding borrowings of close to ₹43,066 crore, as per data available in the MFIN’s micrometer report. There is a 30 per cent growth in borrowings outstanding on a year-on-year basis.
Of the total borrowing, equity of the industry stands at ₹14,406 crore, which has gone up by 56 per cent, when compared to ₹9,209 crore in the same period last year. However, at an aggregated industry level, domestic equity is only 39 per cent of total equity, while the remaining 61 per cent is foreign equity.
“There is a need to bring in more domestic equity into the sector…..the government needs to work in that direction,” Biswas told BusinessLine on the sidelines of a conference to announce the 5th Eastern India Microfinance summit 2019 here on Tuesday. AMFI-WB also felt that the government should cap foreign equity in NBFC-MFIs.
Public sector banks, which were a major source of funding for MFIs, have gone slow on lending after the IL&FS crisis. This has rendered fund-raising both difficult and expensive for NBFC-MFIs.
“A regulatory framework for banks (particularly PSBs) to support NBFCs and MFIs may be put in place to ensure that there is consistent fund flow,” he said.
AMFI-WB also feels that the prevailing regulations for the microfinance industry, which have been in force since 2012 following the recommendations of the YH Malegaon Committee, should now be revisited.
“Over the past five years, there have been several significant changes impacting the microfinance industry, with different types of players, technology and financial disruptions, and different risk elements. “However, the regulations have remained the same,” he said.
According to Biswas, while most MFIs have adopted cashless disbursements, they are continuously exploring opportunities to leverage technology through every stage of the lending value chain.
Some of the MFIs have started experimenting with digital methods for customer onboarding, such as a mobile application to avail instant loans, while others have initiated digital collection processes, and have gained traction with as much as one-third of their collections conducted through the cashless mode.
“Technology will play a pivotal role in delivering a profitable and scalable model as an increase in competition and rise in borrowing costs will add pressure to the margins going forward,” he pointed out.