Q&A: Udaia Kumar, MD, SHARE Microfin

'Funding for MFIs continues to be subdued'

SHARE Microfin was one of the worst affected microfinance institutions after the Andhra Pradesh government passed an ordinance last October to curb micro-lenders. In an interview with Somasroy Chakraborty, managing director Udaia Kumar shares his views on the funding environment and plans to emerge from the crisis. Edited excerpts:

The draft microfinance Bill puts the Reserve Bank of India (RBI) in charge as regulator of the microfinance sector. RBI has also accepted some of the recommendations made by the Malegam committee. Has loan recovery in Andhra Pradesh improved as these steps are initiated?
The draft Bill is a positive development, as it recognises microfinance institutions as extended arms of banks and brings them under RBI's direct supervision. But nothing has changed in field operations. The repayment rate in Andhra Pradesh continues to remain low, at about 10 per cent. There is also very limited opportunity to give fresh loans and expand the balance sheet.

How has the restructuring of debt helped your finances?
We have been able to reschedule payments over the next seven years. There is a year of moratorium and we don't have to repay our bank loans immediately. This has given us a new lifeline and will help us sustain operations for at least two years. But during this period, we don't expect any significant growth in our businesses. If the environment improves, the situation stabilises, we are hopeful of returning to 15-20 per cent growth in business after two years.

Has the funding environment improved? How much additional funds would you require in the next 12-18 months?
The funding environment continues to remain subdued. Banks have not given us any commitments for a fresh line of credit. We are hopeful that with new regulations in place, the situation will improve and banks will resume lending to microfinance institutions. Till then, we are depending on loan recoveries. The money collected from existing borrowers will be ploughed back to fresh loans. We want to raise about Rs 1,200-1,500 crore in the next 18 months.

The cost of funds has gone up in recent months. At what rate are you borrowing?
We’re getting funds at 13.5-14 per cent rates. This is around 225-250 basis points higher than the rate at which we were raising funds earlier.

Standard Chartered Bank and Small Industries Development Bank of India (Sidbi) had subscribed to non-convertible debentures (NCDs) issued by SHARE Microfin. Have these been redeemed?
StanChart had subscribed to Rs 50 crore of NCDs issued by us, of which Rs 25 crore has been redeemed. Sidbi subscribed to NCDs worth Rs 100 crore, which carry a coupon of 13.75 per cent and mature in 2018. So, we have Rs 125 crore of NCDs due.

Are you looking to expand your business outside Andhra Pradesh? Do you have plans to enter any new businesses?
We have operations in 20 states, with around 1,000 branches. Andhra remains a key market. But, the share of the non-Andhra Pradesh business has increased to 50 per cent from 42 per cent earlier. We are looking to enter new businesses that will provide us reasonable surplus and ensure return on equity for our shareholders. We are interested in entering businesses like gold loans and loans to medium and small enterprises.