Small MFIs back in favour with banks

Loans offered mostly to microfinance institutions outside Andhra Pradesh

Microfinance companies in the country finally have something to cheer about. Banks have started offering loans to micro-lenders. Lending has been picking up in the last one month, according to industry players and bankers.

Even smaller firms such as Sonata Finance, Disha India Micro Credit and Arohan Financial Services have got loans or sold some credit portfolios to banks.

However, industry sources say banks have been sanctioning credit proposals of micro-lenders located outside Andhra Pradesh, where the crisis still persists.

Sonata, based in upcountry Allahabad, has sold a part of its loan portfolio to Axis Bank. “Banks have become supportive,” says Anup Singh, chief executive of Sonata Finance. “Quite a few are considering our loan proposals. We are confident of getting credit from these lenders in the coming months.”

The micro-lender has a loan portfolio of around Rs 100 crore, while it has borrowed about Rs 45 crore from banks.

Last month, Punjab National Bank sanctioned a loan application of Disha India, headquartered in Saharanpur, UP. “We have received funding from PNB,” says K N Tiwari, chief executive officer of Disha. “We expect other banks will also approve our loan requests. Our business was not affected by the crisis in Andhra Pradesh. Banks have realised that and are willing to lend to us.”

Small Industries Development Bank of India (Sidbi) has sanctioned loans to Kolkata-based Arohan Financial Services and Varanasi-based Cashpor Microcredit. Also Axis Bank, IndusInd Bank, IDBI Bank, PNB, Karnataka Bank and Union Bank have reportedly expressed interest in offering loans to microfinance firms.

Analysts say some of these banks are looking to buy securitised portfolios or are willing to offer loans to meet their priority sector targets, as the financial year is coming to an end.

However, industry players say the fresh funds were offered at a higher cost and margins of microfinance firms were under stress as the Reserve Bank of India has capped the lending rate of micro-lenders at 26 per cent.

The interest rate charged by banks has increased by around 300 basis points, they said.

“Funding environment has somewhat improved in the last few months,” notes Shubhankar Sengupta, managing director of Arohan. “But the concerns are not over yet. The cost of funds has gone through the roof.”