The Hindu Business Line : ABN-Amro keen to expand micro-finance business

FACED with limitations on branch expansion, ABN-Amro is seeking a special dispensation from the Reserve Bank of India to expand its micro-finance business in India.

The bank, which has so far focused on tie-ups with select micro-finance institutions (MFIs), proposes to widen its reach for augmenting micro-finance portfolio. The portfolio now stands at Rs 62 crore.

Ms Moumita Sen Sarma, Vice-President and Head — Micro-finance, ABN-Amro, said that the RBI has advised the bank to concentrate on "under-banked districts" as part of the expansion process."We are trying to see how best these districts can be identified. The idea is to look at it from a pan-India angle without making State-wise distinctions," she explained.The RBI has set stringent restrictions on branch expansion by foreign banks, and this has prompted ABN-Amro to look for alternatives. Its position, incidentally, has drawn strength from the Vyas Committee's recommendations on the financial empowerment of the marginal sections of the rural population.

The bank is also foreseeing a situation marked by inter-bank syndications for micro-financing. There are practically no examples of such syndication in India, it is pointed out.

It hopes to try out multiple distribution channels. In fact, initial discussions have taken place with Shakti, Hindustan Lever's rural initiative for empowering underprivileged women through income-generating opportunities.

The bank's micro-finance portfolio has grown from Rs 23.6 crore in December 2004 to Rs 62 crore.

The growth is evident on another front too — the number of MFI partners has increased from 6 to 16.

It now reaches out to 1.6 lakh poor households in half a dozen States. Estimates suggest that the size of the market is vast, with about 40 per cent of the population considered `vulnerable.'

The bank aims to build a loan portfolio of Rs 500 crore by 2009. This may be done through more MFI tie-ups, irrespective of initial hand-holding. Talks with some organisations are in progress.

The bank plans to cover a few more States. Most of the 16 partners are located in the South. For ABN-Amro, expansion on this front would require a lower investment.

Quality is an issue, as not more than a handful of MFIs are sufficiently credit-worthy. A lot of organisations just do not meet the requirements, given factors such as poor governance.

There is an obvious shortage of good partners and not all of them are profitable. A thorough check-up of the promoters' background is a must.

The next round of ABN-Amro's micro-finance process excellence awards will be announced in the second quarter of 2006, Ms Sen said, adding that a number of MFIs had been shortlisted to move into the final phase of the programme.

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