Money & Banking

MFIs may need Rs 3,000 cr funding to continue business

G Naga Sridhar Hyderabad | Updated on February 01, 2011

The Micro Finance Institutions (MFIs) are awaiting funding of about Rs 3,000 crore for continuation of their business operations.

“This requirement is only for non-Andhra Pradesh MFIs, which were hit by blockade of funding from banks since October 2010 after the promulgation of ordinance regulating MFIs by the AP Government,” Mr Alok Prasad, CEO, Micro Finance Institutions Network (MFIN), told Business Line on Tuesday.

MFIN is a body of 44 large and medium MFIs registered with the Reserve Bank of India.

On an annual basis, the funding requirement of non-AP MFIs is to the tune of over Rs 10,000 crore, he added.

The MFIs in AP, which accounts for about 30 per cent of the MFI portfolio of the country, would need restructuring of loans as “there are no collections/disbursals,” he added.


However, banks are still not convinced on extending loans to MFIs as they did earlier.

“The process is on to adopt collective approach to lending to MFIs. The lenders' forum and Indian Banks Association (IBA) is currently working on the modalities. We will go with it in this regard,” said Mr R Ramachandran, Chairman and Managing Director, Andhra Bank.

Andhra Bank, however, withheld the disbursal of about Rs 100 crore in the last three/four months. “We have not disbursed but I am not saying that it should not be,” he added.

Ms Renu Challu, Managing Director of State Bank of Hyderabad, said that the ground realities in Andhra Pradesh, where all large MFIs including SKS Microfinance, Spandanda and Share are based, are of “serious concern”.

“Definitely, we will be more cautious and selective,” she said.

Malegam report

When contacted, a senior IBA functionary said a “lot would depend on how the RBI views Malegam Panel's recommendation on funding of MFIs.”

The report said: “removal of priority sector lending to loans given to MFIs would not, in our opinion, be advisable.”

“If this is accepted, banks would be willing to lend to MFIs with, however, much more tough due diligence than earlier,” said the Executive Director of a public sector bank.

Published on February 01, 2011

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