Bank lending to microfinance institutions seems to have gathered steam, albeit with some caution.
According to Mathew Titus, Executive Director of Sa-Dhan (an association of community development finance institutions), even while bank lending to MFIs has seen an improvement in the last two years, the lending is being done on a very selective basis.
“Banks have become very selective in their funding decisions. They are looking for MFIs which are compliant with the code of conduct and with RBI norms,” Titus said at a press meet post a workshop on Regulatory and Code of Conduct Compliance by MFIs here.
Banks, Titus said, also increasingly preferred to extend loans to MFIs, which have a registration certificate from Sa-Dhan, which has close to 180 registered members across the country, of which, 25 are in West Bengal, Titus said.
Lending by banks to the sector had witnessed a steep drop following the crisis in the MFI industry in Andhra Pradesh in 2010.
Total outstanding of MFIs, which stood at close to Rs 20,000 crore in 2010-11, came down to Rs 17,000 crore in 2011-12 as banks were shying away from lending to the sector.
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.
Disbursements
However, an improvement in bank lending to MFIs will help these institutions step up advances, said Kuldip Maity, Managing Director and CEO, Village Financial Services.
Loan outstanding is likely to grow by 15 per cent to over Rs 25,000 crore in 2013-14, against Rs 22,000 in 2012-13.
MFI lending in West Bengal is likely to grow only by about 10 per cent this year. Loan outstanding in the State stood at 4,200 crore in 2012-13.
“A majority of the borrowers in Bengal have already taken loans from two MFIs and as per the recent norms we cannot lend to such customers. We have to, therefore, look at newer set of borrowers which will take some time,” said Shubhankar Sengupta, CEO of Arohan Financial Services.