MFIs turn to the cities

SOCIAL ENTERPRISE

Bandhan, listed by Forbes as the top among the 50 MFIs globally, started operations in the most backward parts of Delhi with formal distribution of loans by its CEO Chandra Shekhar Ghosh, last week.

SKS Microfinance, another MFI with 1.7 million clients and adding 100,000 clients every month, has also set up shop in Delhi. SKS has distributed Rs 2,200 crore.

While Bandhan will move into Mumbai and its slums next month , SKS is also readying its Mumbai plans. SKS started urban microfinance in July 2007 in Hyderabad and covers 14 other cities. Bandhan plans to engage 33,000 clients in each city, says Ghosh.

For Equitas, which has the fourth-largest equity capital of Rs 70 crore among MFIs in India and which has declared itself exclusively urban, urban poor are the only focus. Equitas has 60,000 clients in Chennai.

Urban microfinance has most players excited as it has revealed a picture contrary to expectations of most.

PN Vasudevan, managing director, Equitas, says: "Urban India was never considered suitable for MFI operations, as urban poor were supposed to be a migrating lot. It was also assumed that there would be no bonding within groups to enable them to stand guarantee for one another. All these have proved to be myths."

A report on MFIs for the just concluded financial year by NGO Sa-dhan says that the urban loans account for 25 per cent of the total outstanding of all MFIs in the country.

Mathew Titus of Sa-dhan says: "Only a big MFI can afford to scale-up operations in urban areas." He added the start-up cost and the loan sizes are higher in the cities.

The share of the Rs 5,000 loan segment is three times bigger for rural than for urban MFIs. On the other hand, urban MFIs have a 1.5 times bigger share of Rs 10,000 loan segment than rural MFIs, says the Sa-dhan study. Grameen Kuta with a Rs 110 crore portfolio, flush with equity funding, found a strong base in Bangalore city as well as many other towns in the state.

According to the Sa-dhan, for the last financial year MFIs served 14.1 million clients, 75 per cent of whom received loans below Rs 10,000. Every fourth borrower belongs to urban areas.