Muthoot Pappachan's MFI to get company umbrella

The growth in loans by MFIs and the improving regulatory environment for micro lenders have convinced it to create a separate subsidiary for this business

 

The Muthoot Pappachan Group, a Kerala-based diversified conglomerate, plans to hive off its micro lending business into a separate company.

The growth in loans by micro finance institutions (MFIs) and the improving regulatory environment for micro lenders have convinced it to create a separate subsidiary for this business. The new company, Muthoot Microfin, is expected to commence operations by the end of March. "Currently, we offer micro finance loans through our gold loan company, Muthoot Fincorp. We are planning to set up a separate NBFC (non-banking finance company) for this business. We have already applied to the Reserve Bank of India (RBI) for a NBFC-MFI licence," Thomas John Muthoot, chairman and managing director of the Group, told Business Standard.

"We felt it made sense for us to have a separate company for the micro finance business, as the operating environment and regulatory conditions have started improving. We expect to receive the NBFC-MFI licence from RBI by the middle of next month. We have the system in place to start the company within a few weeks of getting the approval," said Sadaf Sayeed, chief operating officer of the micro finance business.

The Group has an ambitious target of doubling its micro finance loan portfolio to Rs 1,200 crore by March 2015. It currently has a portfolio of Rs 540 crore of micro loans. There are 640,000 micro finance customers and it offers micro loans across seven states and Union Territories. Besides micro finance loans, the new company will offer loans for dairying to farmers and finance purchase of low-cost water purifiers. It will also offer micro insurance products.

Sayeed said the group will invest sufficiently to grow the micro finance business through the new company. For NBFC-MFIs, the minimum in net owned funds is Rs 5 crore, by RBI norms. Also, all new NBFC-MFIs have to maintain a capital adequacy ratio (tier-I and tier-II capital) of at least 15 per cent of aggregate risk-weighted assets.

"At this point, we are not considering any stake sale to private investors. In the long run, we might consider bringing in an investor but we will be careful in choosing our partner. We will look for social investors who share our philosophy. For now, the Group will provide sufficient capital to grow the micro finance business," said Sayeed.

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