Micro-finance funding skewed towards urban areas

Despite the intended focus on low-income population, the bulk of which resides in rural areas, the loan portfolio of non-banking microfinance companies that touched an all-time high last year, is heavily skewed in favour of India's urban quarters, fresh data shows.

According to Sa-Dhan, an association of microfinance institutions, within the loan portfolio of Rs 60,328 crore in 2015-16, only 28 per cent or Rs 16,892 crore, went to the rural economy, with urban and semi-urban areas accounting for 72 per cent or Rs 43,436 crore.

In the previous year, rural exposure was 30 percent.

"Demand for the rural loaning is of very low volumes," P. Satish, Executive Director of Sa-Dhan, told IANS, adding credit in the hinterland was is failing to pick up due to limited geographic reach of these finance companies.

"If the institutions have to give more credit in rural areas, they need a wider network. Even rural area-focused institutions have their office in semi-urban or urban areas. In urban areas, especially, they have a wider geographical reach," Satish said.

"Moreover, the demand for rural credit is mainly for agricultural loans, which under Centre's various 'krishi' schemes are better catered by banks at a lower interest rate."

Microfinance institutions give small loans to entrepreneurs with an income limit of Rs 100,000 and Rs 160,000 respectively in rural and urban areas with a cap on the indebtedness at Rs 100,000.

Microfinance Institutions Network, a self-regulatory organisation for the sector established in October 2009, that has a target of providing financial services to 100 million low income households by 2020 feels there are some regulatory issues as well that need to be addressed.

"There has been a continuous policy dialogue with the Reserve Bank of India on several policy issues, mainly on microfinance institutions and broader financial inclusion," said Ratna Vishwanathan, Chief Executive of the network.

"The amount of loan portfolio in rural areas is very less compared to the urban areas, which may be a concern -- it, in fact, fell in 2015-16," Oscar Martins, Director of Financial Services with Protiviti, told IANS.

"Migration to urban areas is increasing fast and many of these migrants are also microfinance clients," added Satish, giving another reason why the loan portfolio is skewed in favour of urban areas.

"Despite the talk of universal financial inclusion, as long as there is a demand for small, unsecured loans at the lower end of the economic levels, there will be an expansion of the portfolio of micro-finance institutions in urban and semi-urban areas."

--IANS

mm/ap/vt