MFIs also troubled by the global financial meltdown
By Vaibhav Aggarwal
Nov 3, 2008
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Microfinance institutions (MFIs) were considered for offering stable returns over the long term in an unstable economy but now even they seem to be hit by the global financial slowdown.

Banks and financial institutions have cut on their disbursements to MFIs and also raised the interest rates over 200 basis points for these institutions. Besides the banks are demanding for personal guarantees of directors of MFIs.

Some banks have raised the security margins over the loan amount that is been sanctioned by them. This margin is raised to 25% from 10% by a few banks and made it difficult for the MFIs to use even the sanctioned funds. Market sources feel that the MFIs will face a problem in raising loans till January 2009 and there after situations will ease as the banks are likely to achieve their lending targets of the priority-sector in the last quarter of the fiscal.

Share Microfin, Managing Director, M Udaia Kumar said, "The situation is alarming in India for MFIs, since it affects the credibility of the organization. Further, it strains the relationship of trust built with clients and may result to clients not making timely repayments."

Managing Director of Spandana, Padmaja Reddy said, "Banks are tightening credit lines. Current sanctions are available but disbursements are getting delayed. Interest rates have predominantly gone up by over 200 basis points. But we have been able to absorb the rise in interest cost as our operating costs are low."

However the state-run banks refuse on going slow in their lending to MFIs and self-help groups (SHGs). Further they say that there is nearly 100% repayment from these institutions and therefore lending to them is always advantageous for the banks.

A banker from PSU bank said, "One doesn't see a reason for reduction in the quantum of lending to these institutions. The rate at which we lend to MFIs is dependent on a number of factors, including the rating of such agencies. These rates may have marginally gone up due to the prevailing liquidity situations."

"PSU banks have clearly mandated social banking goals and we have to achieve it," said another banker.

Currently the total disbursements to MFIs aggregate to around Rs 1 lakh crore.


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