With non-banking finance companies — microfinance institutions (NBFC-MFIs) likely to have overall debt of Rs 36,000 crore to Rs 42,000 crore by March 2016, re-finance from MUDRA Bank could constitute a major portion of the overall debt of the MFIs, according to rating agency ICRA.

According to ICRA estimates, the MFI sector, including self-help groups (SHGs) and NBFC-MFIs, had a total portfolio of Rs 78,000 crore as on September 30, 2014, ICRA said in a report here.

It said, assuming an annual growth rate of 10-15 per cent for SHGs and 30-35 per cent for NBFC-MFIs for the next two years, the overall microfinance portfolio is likely to cross Rs 1 trillion.

“The NBFC-MFIs alone are likely to have overall debt of Rs 36,000-42,000 crore by March 2016. Refinance from Micro Units Development Refinance Agency (MUDRA) Bank could constitute a significant proportion of the overall debt of the MFIs,” it noted.

It further said since MUDRA Bank is likely to have access to low-cost funds from shortfalls in priority sector lending, it is likely to pass on the same, leading to lower funding costs for players.

Given that the current funding costs of MFIs vary from 12-16 per cent, with the median cost of funds being 14 per cent, NBFC-MFIs’ cost of funds for MFIs could come down by 100-400 bps depending on the share of funding an MFI is able to receive from MUDRA bank.

However, it said it would be important to understand the criteria MUDRA Bank could follow for onward lending to players in the MFI space with respect to interest rates and allocation among various players.

A single regulator for all entities engaged in microfinance could lead to adoption of a uniform code of conduct for all players in the industry, which could also define the best practice for delivery of financial services to the under-served, it added.

Currently, there are differences in regulations by different regulators.

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