Despite a recent directive from the Reserve Bank of India (RBI) to the banking sector that funds of up to Rs 5 lakh should be made available to micro, small and medium enterprises without collateral security, many MSMEs still find it difficult to raise funds in emergencies.
Spotting a business opportunity, a Bangalore-based micro finance firm, Grameen Koota Micro Finance Services, which until now had been lending only to women and self-help groups, has set up a new division, Maarg Financial Services, to extend loans to micro and small enterprises.
With its flexible repayment schedules ranging from weekly and fortnightly to half-yearly tenures, the company aims to extend unsecured loans of up to Rs 5 lakh to MSMEs. It plans to start offering the service in and around Bangalore, later extending it to all its operational areas in Karnataka and Maharashtra, Suresh K Krishna, Managing Director of Grameen Koota, said.
“There are many avenues available for MSMEs to borrow funds from, including commercial banks, but they often find it difficult to borrow at short notice, and particularly collateral-free loans. It is even more difficult for firms without a proper credit history. We want to bridge this gap with tailor-made financial products and services. MSMEs can borrow between Rs 10,000 and Rs 5 lakh from us at their doorsteps, depending on their needs,” he said.
This 10-year old micro finance firm, which was recently granted a non-banking financial company (NBFC) status, aims to increase its loan portfolio from Rs 145 crore to Rs 400 crore this year.
This involves expanding its branch network to 152 branches from the current 90 branches in Karnataka and Maharashtra. However, it plans to extend credit to MSMEs in Karnataka this year, Krishna added. The firm has opened two dedicated branches in Bangalore on a pilot basis, and is in the process of opening a third, he said. Over the past year, the company has built a portfolio of 200 MSME clients, to whom it has loaned Rs 2.5 crore.
Its clientele includes individuals, shops, cottage industries and micro enterprises. With the new branches it aims to widen its total exposure to MSMEs to Rs 10 crore.
“Our products are simple and designed to facilitate easy record keeping and tracking. Since our clients are largely from economically weaker sections of society, we provide collateral-free micro finance. We have developed a system to screen micro and small firms better. Since we know the firms we are sure that there will be no defaulters even when we extend unsecured loans,” Krishna said.
The company's main thrust is to provide loans to all categories in emergencies and aid the entrepreneurial activities of poor and low-income families. Grameen Koota also offers life, health and cattle insurance schemes. It plans to extend its reach from the current 270,000 households to 400,000 households by the year-end, he said.
The company's main thrust is to provide loans to all categories in emergencies and aid the entrepreneurial activities of poor and low-income families. Grameen Koota also offers life, health and cattle insurance schemes to its clients. It plans to extend its reach from the current 270,000 households to 400,000 households by the year-end, he said.
To finance its expansion and boost its capital adequacy ratio, the firm plans to inject more funds. "We are planning to raise around $8 million in second-round funding. We are in talks with private equity funds exclusively dedicated to micro finance and hope to close the deal shortly," Krishna said.
In its first round of funding last year, Grameen Koota had divested 26 per cent to raise $2.3 million from a PE fund, Aavishkaar Goodwell. It is yet to decide on the exact extent of equity dilution in the second round, he said.
The firm currently has a total fund of Rs 22 crore, which will be sufficient to finance expansion during the current year. In the third round of fund raising, likely in June next year, the firm will raise close to Rs 100 crore, he said.
Grameen Koota's capital adequacy ratio is 15 per cent, and its non-performing assets (NPAs) were in the range of 3-4 per cent, he said. "There are some delayed payments. We have worked out flexible payment options for our customers to repay their loans," Krishna added.
