Now, micro-lenders looking beyond core biz to shore up income

Microfinance institutions are now looking for a steady stream of income by going beyond the core business of micro-lending to the poor.

As the RBI has now permitted MFIs to have up to 15 per cent of their portfolio in the non-priority sector, they are working on new offerings in housing finance, gold loans, mobile financing, among others.

The crisis in Andhra Pradesh, the largest MFI market in the country, since October 2010, is also one of the reasons for MFIs to venture into new areas. “They are now forced to find new ways to insulate their portfolio from political threat or local disturbances,” Mr Rahul Kumar, Chief Financial Officer, Mimoza Enterprises Finance, a New Delhi-based MFI, told Business Line .

SKS Microfinance, the country's largest and only listed MFI, is also treading on a similar path. It recently entered into the gold loan segment. “There is a good potential in this area. This will also help the poor as there is lot of credit gap to meet urgent/emergency needs,” said a senior functionary of the Hyderabad-based SKS.

Fine-tuning of rates

But for MFIs to sustain in these segments, they should fine-tune their rates and operate in a differentiated way. “A lot would also depend on the bandwidth of these institutions,” said Dr Krishna Reddy, a senior functionary of Sa-Dhan (South). Those entering the secured lending space should also ensure adequate internal control mechanisms, said Mr Kumar of Mimoza.

However, some MFIs prefer staying within the ambit of lending to the poor, since they lack the financial muscle to withstand stiff competition from big banks and established NBFCs. The Bangalore-based Ujjivan Financial Services, for instance, would get into individual lending for existing customers, said its Managing Director, Mr Samit Ghosh.

“This is a good market to tap as customers are not comfortable with group lending when it comes to larger size business loans,” he added.

Tough for small players

According to Dr Reddy of Sa-Dhan, though bigger players can use their surplus for their non-priority sector portfolio, smaller players will find the going tough. “As banks are yet to start funding their operations, many small MFIs, even those operating outside Andhra Pradesh, are struggling to sustain now,” he explained.

Mr Suresh Krishna, Managing Director of Grameen Koota, said the 15 per cent leeway in non-priority sector portfolio, however, might not give much room for MFIs to do other products as this has to be funded by equity. Most of the equity will be locked in general liquidity and providing first-loss cash collaterals.

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