First there was the bank. Then there was microfinance. Or was it the other way round? Whatever the order, today, banks are being forced to look towards micro-credit as thick carpets of wealth are being pulled from under their feet by enterprising micro-finance institutions (MFIs). Today, the total loan portfolio of MFIs is Rs 6,000 crore.
So, banks are queuing up for a share of the pie. Yes Bank, for instance, has signed up for doing some direct lending to individuals while banks like Union Bank and State Bank of India are lending to self-help groups.
Yes Bank’s Group President (corporate finance and development banking) Somak Ghosh says there are no losses and just 2 per cent default rate at each of its three micro-finance branches in Mumbai’s Chembur, Thane and Worli areas.
The banks’s division dedicated to microfinance, Sampann, has so far covered 2,500 borrowers and given loans up to Rs 50,000 to be repaid in a year. It has tied up with the Latin American MFI, Accion, which specialises in lending to individuals, unlike the Grameen Bank model of lending to groups. Accion trains workers hired by Sampann to identify borrowers and in getting information on their ability to repay.
They are learning through trial and error and have tried different models in a year —beginning with daily collection, changing it to weekly and now shifting to fortnightly and monthly collections.
Last month, it began deposit facilities for its borrowers and is now talking to insurance companies for a micro-insurance package for its Sampann account holders.
More From This Section
Ghosh says Mumbai’s Sampann is like a pilot and Delhi, Pune and their surrounding areas are next on its list to be covered in the next two years.
Yes Bank, of course, does not talk about the interest rates it charges, merely saying that it compares with what other MFIs charge.
Ghosh says this is the most direct way to meet targets for the priority sector that all banks are supposed to meet.
Mathew Titus of MFI think-tank Saadhan says banks can easily match the loan portfolio of MFIs, provided regulatory bottlenecks are removed. But he does not see banks going schizophrenic the way Yes Bank has split itself into banking and microfinance.
They would do the more easier thing, that is, lending to MFIs and to self-help groups, said Titus.
In this context, Yes Bank has set upon a unique journey which may or may not find many followers.
Bandhan, a leading MFI, started operations in Mumbai six months ago and with 7,000 beneficiaries has a loan portfolio of Rs four crore. It has a total loan portfolio of Rs 600 crore and a clientele of five million. Every month, it lends Rs 150 crore and adds 75,000 borrowers.
Chandra Shekhar, CEO of Bandhan, says banks can never do this unless they run parallel operations.
Banks like HDFC Bank, ICICI Bank, ABN Amro and Standard Chartered have entered micro-credit indirectly by supporting MFIs to cover their priority sector lending targets. Some of them lend to self-help groups.
Sitaram Rao, who was a consultant to SKS, says “financial inclusion zindabad” to the idea of banks doing microfinance. Let all of them do direct lending, till of course the Reserve Bank of India puts a cap on interest rates, he says. That would be interesting!