 "Representative Image of microfinance")
About a month ago, Tata Sons Chairman Emeritus Ratan Tata, former finance secretary and chairman of the National Institute of Public Finance and Policy Vijay Kelkar, and Infosys co-founder Nandan Nilekani joined hands to set up a technology-enabled microfinance company, Avanti Finance.
The presence of the three veterans in one venture was not a surprise in the sense that investors were drawn to the microfinance sector because of its high levels of portfolio growth and opportunities to tap the huge pool of rural savings. Banks, which have long seen priority-sector credit as a government-imposed obligation, too, are now looking to be a part of the MFI boom. Over the past year, a number of banks have picked up stakes in MFIs. While many deals have already been signed, industry experts say more partnerships are in the offing.
Last week, while Kotak Mahindra Bank acquired Bengaluru-based BSS Microfinance, RBL Bank acquired about a 10 per cent stake in Utkarsh Micro Finance, which will soon graduate into a small finance bank. In July this year, IDFC Bank acquired Trichy-based Grama Vidiyal Microfinance. This was IDFC Bank’s second deal in the MFI space. Earlier this year, IDFC Bank had picked up a 10 per cent stake in east India-based ASA International India Microfinance. In March this year, DCB Bank had acquired a 5.81 per cent stake in Odisha-based Annapurna Microfinance.
“At RBL, we are focused on financial inclusion and mass banking for the past five years. We have a significant part of business built on partnerships. Investment in Utkarsh is the continuity of that approach of enhancing distribution. When they become a bank, there are various things we can do for them,” said Rajeev Ahuja, head of strategy, retail and financial inclusion at RBL Bank.
Earlier, RBL Bank had acquired a 30 per cent stake in Swadhaar FinServe, a company acting as a banking correspondent. Non-banking financial companies, too, have shown interest in acquiring MFIs. In 2015, Manappuram Finance had acquired Asirvad Micro Finance, a Chennai-based NBFC-MFI.
While growth in the MFI sector — 84 per cent year-on-year at the end of last financial year — is a good reason for the interest of banks, other factors are also attracting lenders to MFIs. For example, through tie-ups with MFIs, banks would be able to tap remote geographies without making a lot of investment. This apart, with MFIs acting as banking correspondents, banks would have access to a large pool of savings in rural areas.
“’In the past one year, we have seen many banks taking interest in buying stakes or acquiring MFIs. It is a win-win situation for both banks and MFIs,” said Abhijit Ray, co-founder and managing director, Unitus Capital.
“Earlier, banks used to give term loans to MFIs for on-lending. But now, many are preferring to pick up stake in them and making them their subsidiaries,” said H P Singh, chairman, Satin Care Credit Network. This apart, the fact that eight of the 10 small finance bank licences were bagged by MFIs has increased investors’ interest in the sector. This is also attracting new investors to the sector. Notably, in the past year, eight to 10 new MFIs have come into being, according to Microfinance Institutions Network (MFIN).
“For MFIs, it makes sense to become part of a larger entity. For banks, the MFIs help them increase their outreach towards rural portfolios. We could see deals between banks and MFIs in the coming days,” said Ratna Vishwanathan, CEO of MFIN.
“For banks looking to quickly expand their distribution network on the ground, MFIs offer interesting possibilities. Also, from a market segmentation standpoint, what we see is a slowdown in corporate lending and a high degree of risk aversion. In the MSME (micro, small and medium enterprises) segment, too, things have been quite challenging. In retail, mortgages on the higher end is a crowded business, and HNIs (high networth individuals) are over-served. Hence, going down the scale and tapping customers at the lower end of the market is an emerging strategy,” said Alok Prasad, industry expert and former chief executive officer of MFIN.
RECENT MAJOR DEALS BETWEEN BANKS AND MFIS
The presence of the three veterans in one venture was not a surprise in the sense that investors were drawn to the microfinance sector because of its high levels of portfolio growth and opportunities to tap the huge pool of rural savings. Banks, which have long seen priority-sector credit as a government-imposed obligation, too, are now looking to be a part of the MFI boom. Over the past year, a number of banks have picked up stakes in MFIs. While many deals have already been signed, industry experts say more partnerships are in the offing.
Last week, while Kotak Mahindra Bank acquired Bengaluru-based BSS Microfinance, RBL Bank acquired about a 10 per cent stake in Utkarsh Micro Finance, which will soon graduate into a small finance bank. In July this year, IDFC Bank acquired Trichy-based Grama Vidiyal Microfinance. This was IDFC Bank’s second deal in the MFI space. Earlier this year, IDFC Bank had picked up a 10 per cent stake in east India-based ASA International India Microfinance. In March this year, DCB Bank had acquired a 5.81 per cent stake in Odisha-based Annapurna Microfinance.
“At RBL, we are focused on financial inclusion and mass banking for the past five years. We have a significant part of business built on partnerships. Investment in Utkarsh is the continuity of that approach of enhancing distribution. When they become a bank, there are various things we can do for them,” said Rajeev Ahuja, head of strategy, retail and financial inclusion at RBL Bank.
Earlier, RBL Bank had acquired a 30 per cent stake in Swadhaar FinServe, a company acting as a banking correspondent. Non-banking financial companies, too, have shown interest in acquiring MFIs. In 2015, Manappuram Finance had acquired Asirvad Micro Finance, a Chennai-based NBFC-MFI.
While growth in the MFI sector — 84 per cent year-on-year at the end of last financial year — is a good reason for the interest of banks, other factors are also attracting lenders to MFIs. For example, through tie-ups with MFIs, banks would be able to tap remote geographies without making a lot of investment. This apart, with MFIs acting as banking correspondents, banks would have access to a large pool of savings in rural areas.
“’In the past one year, we have seen many banks taking interest in buying stakes or acquiring MFIs. It is a win-win situation for both banks and MFIs,” said Abhijit Ray, co-founder and managing director, Unitus Capital.
“Earlier, banks used to give term loans to MFIs for on-lending. But now, many are preferring to pick up stake in them and making them their subsidiaries,” said H P Singh, chairman, Satin Care Credit Network. This apart, the fact that eight of the 10 small finance bank licences were bagged by MFIs has increased investors’ interest in the sector. This is also attracting new investors to the sector. Notably, in the past year, eight to 10 new MFIs have come into being, according to Microfinance Institutions Network (MFIN).
“For MFIs, it makes sense to become part of a larger entity. For banks, the MFIs help them increase their outreach towards rural portfolios. We could see deals between banks and MFIs in the coming days,” said Ratna Vishwanathan, CEO of MFIN.
“For banks looking to quickly expand their distribution network on the ground, MFIs offer interesting possibilities. Also, from a market segmentation standpoint, what we see is a slowdown in corporate lending and a high degree of risk aversion. In the MSME (micro, small and medium enterprises) segment, too, things have been quite challenging. In retail, mortgages on the higher end is a crowded business, and HNIs (high networth individuals) are over-served. Hence, going down the scale and tapping customers at the lower end of the market is an emerging strategy,” said Alok Prasad, industry expert and former chief executive officer of MFIN.
RECENT MAJOR DEALS BETWEEN BANKS AND MFIS
- Kotak Mahindra Bank acquired BSS Microfinance
- RBL Bank acquired 10 per cent stake in Utkarsh Microfinance
- IDFC Bank acquired Grama Vidiyal Microfinance
- IDFC Bank picked up 10 per cent stake in ASA International India Microfinance.
- DCB Bank had acquired 5.81 per cent stake in Annapurna Microfinance
