Business Standard

Equity fund offers hope for microfinance firms

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Finally, there is a ray of hope for small micro-lenders in Andhra Pradesh. A year ago Finance Minister had proposed creation of a dedicated fund to provide equity to assist small microfinance institutions in expanding operations.

The Rs 100-crore fund has been created and Small Industries Development Bank of India (Sidbi) has started disbursing money to small micro-lenders. Most micro-lenders in are not aware of the status of the fund as received the money only a couple of weeks ago.

Sidbi has so far sanctioned around Rs 30 crore out of this fund to eight microfinance companies outside Andhra Pradesh. Sushil Muhnot, chairman and managing director of Sidbi, expects the investment to top Rs 50 crore by the end of the financial year as Sidbi is evaluating a few more proposals. “It is a perpetual fund and hence will not lapse,” Muhnot told Business Standard.

While Sidbi has committed to provide financial assistance to microfinance institutions outside Andhra Pradesh, senior officials said they were not averse to investing in small micro-lenders in the state, where the local government has curbed micro-lending activities of private players since October 2010.

“If the situation improves, we will also consider proposals of small microfinance institutions from Andhra Pradesh. The investment will happen after assessing the credit profile and financial health,” said Muhnot.

Most industry players said the move will help revive small micro-lenders in the state, who are on the verge of collapse as borrowers have stopped loan repayments while banks and private investors are reluctant to offer fresh funds.

“It is a positive development. At least someone is willing to consider investment proposals from us. We are hopeful that the passage of the will improve the situation in the coming months. That will pave the way for Sidbi to invest in companies like us,” said a chief executive of a small microfinance institution in Andhra Pradesh that has requested its banks to restructure its debts.

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