| Thanks largely to the success of the self-help group model in India and its rapid coverage now of almost all states and also the influence of the Grameen model, most micro-finance companies in India have tended to adopt a group-lending approach. This, together with keeping initial loan amounts restricted to around Rs 5,000, has implied heavy administrative costs. Despite the fact that MFIs have come under flak for charging “high” interest rates, there has only been limited scope to scale down administrative costs in the model followed so far of lending tiny amounts to members of women’s groups in rural India.
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| Organising predominantly illiterate women into groups, getting them to follow the discipline of group meetings, trying to make many of them first-time entrepreneurs and then collecting the repayment in small amounts are all very time-consuming and therefore expensive tasks. Little wonder then that in micro-finance seminars, meetings and boardroom discussions, I am increasingly hearing of the need for MFIs now to outgrow the Grameen hangover and lend to men too, include the urban poor in the universe of those that need servicing, treat borrowers as individuals rather than groups, and increase the ticket size.
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| Recent conversations with senior management at the National Housing Bank and at prominent investment banks point to a growing interest in creating a mortgage market for those not entitled to housing loans so far. There are very compelling reasons for this new product to be distributed through existing MFIs. However, the loan size being considered will range between Rs 2 lakh and Rs 3 lakh, much higher than what the traditional MFIs are used to lending, and will call for a huge jump in credit-scoring abilities.
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| The good news is that a model of lending relatively large amounts to men or women individually is not a new one in urban areas. In fact, many small companies that started in the early nineties doing asset financing in the consumer durables boom, have graduated to giving unsecured loans primarily for trade and small business.
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| Two success stories which may be cases in point are Ahmedabad-headquartered MAS Financial Services and Delhi-headquartered Satin Credit Care Network. Both started coincidentally in 1990, as asset-financing NBFCs; MAS today has 33 branches in Gujarat while Satin has 17 in Haryana, UP and Rajasthan.
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| The 33 branches of MAS oversee 1,300 “centres”, which actually do the scouting for business and chase repayment. With a current disbursement of Rs 195 crore and an average loan size of Rs 20,000, MAS is catering for nearly 45,000 borrowers. Satin has a current disbursement of Rs 37 crore and an average loan size of Rs 27,000, which would cover over 12,000 borrowers.
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| Both follow a centralised loan-sanctioning process and endeavour to process applications at the central office within a day (which for MAS may mean up to 250 cases). Over the years, working with many of the same borrowers, MAS has managed to graduate many of them to having bank accounts (maximum loan size currently is as high as Rs 1.5 lakh) and now enjoys the comfort of repayment through PDCs. Satin works on a daily repayment in cash model. Both have delays in repayment but manage repayment rates of over 98 per cent.
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| According to Mukesh Gandhi, director, finance, at MAS, they experience a 15-20 per cent cheque bounce daily. But “much of this is due to the fact that the borrowers are still new to banking discipline. Follow-ups ensure 8-10 per cent of the bounced cheques get cleared within a fortnight,” says Gandhi. Jugal Kataria, CFO and company secretary of Satin, too, underlines that majority of repayment delays are because of “reasons beyond the control of the borrower like transport or weather disruptions”.
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| The most significant difference between the model that MAS and Satin have chosen to follow from that of the traditional MFIs is that they typically tend to lend to a borrower who is already in some enterprise and, whether man or woman, has a credit need. This is certainly different from the self-help group model or the joint liability group model, in which there are many instances wherein the MFI actually takes on the role of counselling its women members to start an enterprise.
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| Although banks were initially a trifle uncomfortable with unsecured “large” loans, both the NBFCs seem to have been able to satisfy their lenders of their credit systems and recovery procedures. Both now have blue-chip lenders like SIDBI, ICICI Bank, HDFC Bank, UTI Bank and Standard Chartered Bank extending lines of credit.
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| “Estimates may vary, but there can be little doubt that there is a huge demand-supply gap,” says Kataria. For both MAS and Satin finding borrowers is not an issue. What is is “keeping control”, says Gandhi. Players in this sector are highly aware of the central bank’s focus on them. “Any mistakes and NBFC MFIs could be given a bad name for years”.
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| The author can be reached at keyasarkar@yahoo.co.in |
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