MFIs told to bring customers for Jan Dhan Yojana

As part of the Pradhan Mantri Jan Dhan Yojana, the government has asked microfinance institutions (MFIs) to facilitate opening of bank accounts by their existing customers.

As a logical step ahead,  MFIs too are deliberating on conducting transactions on a banking platform, rather than physical disbursement of cash.

A handful of MFIs have already started loan disbursals through bank accounts, even though repayment through a bank account remains a challenge for the MFIs.

At Ujjivan, one of the pioneer organisations in conducting micro-lending activities, nearly half of the portfolio is on a banking platform. On a pilot basis, Ujjivan is also experimenting with the mechanism of ECS (Electronic Clearing Services) for collections. In the past two days, under the Jan Dhan Yojna, the MFI helped nearly 2,000 customers open a bank account.

“On a pilot basis, we are experimenting the collections on a ECS platform on nearly 7,000, out of 1.5 million customers,” said Samit Ghosh, founder, Ujjivan.

At present, the MFI industry has nearly 30 million customers, of which not more than 10 per cent have bank accounts.

Equitas, another MFI, has also started disbursing loans through banks. In a short period of nearly seven months, about 35 per cent of the MFI disbursals are done through banks. Over the next few years, the MFI hopes to conduct all the disbursals through banks.

However, according to P N Vasudevan, CEO, founder, Equitas MFI, collections of micro-loans through banks  would be difficult, as the amounts and duration are too small for a banking transaction.

The MFI industry at present has an outstanding portfolio of nearly Rs 21,000 crore, with daily transaction of nearly Rs 100 crore.

Several other MFIs are also experimenting with cash-less transactions in microlending. For example, Janalaskshmi has tied up with DCB (Development Credit Bank) to launch a co-branded prepaid card for disbursal of small loans to its urban clientele.

“For MFIs, nearly 95 per cent borrowers are women. So MFIs can not only facilitate opening bank accounts for women, but also their spouses, which could take the number to nearly 40 million. MFIs can also play other roles in the Jan Dhan Yojna, like doing due diligence for banks in case of overdraft facilities,” said Alok Prasad, CEO, MFIN.