Sidbi, Nabard compete to lend to top MFIs under RBI's liquidity support

With both, the  Small Industries Development Bank of India (Sidbi) and National Bank for Agriculture & Rural Development (Nabard), having Rs 40,000 crore at their disposal for liquidity support from Reserve Bank of India (RBI), both organisations are chasing top Microfinance Institutions (MFIs) for financing.

According to informal estimates, the two organisations together are looking to extend Rs 7,000-8,000 crore in funding to MFIs.

In fact, the two are even competing with each other to tap top MFIs, according to a senior executive at the MFI industry.

Yesterday Sidbi extended the repayment period of loans to MFIs to one year from the 90-day period earlier under the special scheme. This came after Nabard said it would provide an 18-month term loan to MFIs on its own, apart from the special refinance scheme of one year as directed by RBI.

A few days back, Sidbi reached out to MFIN (Microfinance Institutions Network), to seek a list of MFIs in need of funds.

Yesterday Nabard held a meeting MFIs and indicated that it can provide term loans of up to 24 months, and would top up the RBI corpus with its own funds to support MFIs, said sources.

Nabard also suggested that the big MFIs who avail the funds, could onlend to smaller MFIs under the liquidity support mechanism.

The fund disbursements are likely to happen by mid May.

Further, the rates of interest offered indicated by the institutions could be in the 7-8 per cent range, depending upon the credit ratings, sources said. Normally, such financing is done at an interest rate of 11-12 per cent.

“For large MFIs, the funding has not been a problem. Both Sidbi and Nabard are supporting investment-grade and big MFI,” said P Satish, Executive Director, Sa-Dhan.

“Both Sidbi and Nabard and complementing each other to support MFIs, which is a very encouraging trend,” said Harsh Srivastava CEO of MFIN.

However, the major issue with the MFI sector is the lack of liquidity support for smaller MFIs, who do not have investment grade rating. While for Nabard’s refinance is available to MFIs with asset size of Rs 500 crore or more, for Sidbi the criteria is investment grade rating.

RBI has allocated Rs 50,000 crore to Nabard, Sidbi and National Housing Bank (NHB). Of this, Rs 25,000 crore is earmarked for Nabard for refinancing regional rural banks (RRBs), cooperative banks and  MFIs; Rs 15,000 crore has been set aside for Sidbi to on-lend/refinance; and Rs 10,000 crore has been earmarked for NHB to enable it to support housing finance companies (HFCs).

According to Satish, 35-45 NBFC MFIs would be eligible for funding from Nabard and Sidbi. More than 100 MFIs would be left out.

Both Sa-dhan and MFIN are in talks with the organisations for support to smaller MFIs.

Apart from finance from Sidbi and Nabard, RBI had announced under targeted long-term repo TLTRO  (TLTRO 2) of Rs 50,000 crore to provide liquidity support to the shadow banking sector and the microfinance institutions.

For MFIs, the earmarked amount is Rs 2,500 crore. However, once again smaller MFIs are largely left out of funding scope. Also, banks themselves did not show much interest in TLTRO 2 funds. In the first auction for an amount of Rs 25,000 crore on April 23, RBI had received bids for only Rs 12,850 crore.