FINO is also into microfinance, but this is not as large a component of its business as Government social security systems or NREGA. It has about 50,000 customers and a Rs 5-crore microfinance portfolio.
Khera says he is more competitive than microfinance institutions (MFIs), which typically lend to women's groups at 24-26 per cent interest. The math, he explains, works thus: MFIs borrow from banks at 10-12 per cent, their cost of operations is another 10-12 per cent, taking the total to over 24 per cent, allowing profit margins. “But our cost of operations is only 4-6 per cent, so we can lend to these women at sub-20 per cent. And we don't own the customer, the bank does, with the result that sometimes banks do give some loans at around 14 per cent.”
But in group loans FINO too lends at 24 per cent like other MFIs. “We've not disturbed the dynamics. We want to demonstrate to banks that they can do groups not only through MFIs but also us.” He argues that group loans work for MFIs because the default rates are low compared to individual loans. “We want banks to get the comfort that if you lend through BC as a channel the default rate with be similar to MFIs. But our cost of operation is only around 4 per cent, and once the banks are comfortable with us we'll offer to reduce the interest rates from 24 to sub-20 per cent. Ultimately the volume we can give them, no MFI can match. Once banks give us the go ahead for group loans, we will challenge the MFIs in their home turf!”Rasheeda Bhagat