Microfinance industry is on the cusp of great change: Alok Prasad

June 08, 2015 10:46 pm | Updated 10:46 pm IST

HYDERABAD, 03/07/2010: Alok Prasad, CEO  of the Microfinance Institutions Network, in Hyderabad on July 03, 2010.
Photo: P.V.Sivakumar

HYDERABAD, 03/07/2010: Alok Prasad, CEO of the Microfinance Institutions Network, in Hyderabad on July 03, 2010. Photo: P.V.Sivakumar

Indian microfinance industry, which plunged into a crisis five years back, had made a turnaround in 2014-15. Its total loan portfolio year-on-year increased 61 per cent to Rs.40,138 crore during the year. As of March 31, 2015, it provided micro credit to 30.5 million borrowers, a growth of 29 per cent. The applications of 17 micro lenders seeking licences to operate small banks are under the consideration of RBI. Microfinance Institutions Network (MFIN) CEO, Alok Prasad , says in an e-mail interview to The Hindu that the industry is at the cusp of great change.   Excerpts:   

 What factors contributed to the steep growth of MFIs in 2014-15?

 The extremely rapid growth of the industry has to be seen in the broader context of the robust core demand for microfinance coupled with positive policy stance of the RBI and the Government. Within this big picture framework, the key drivers of growth have been the accelerated fund flows from banks and equity investors; the substantial scaling up of operations by a number of players; and, the geographical expansion of the industry to newer, less penetrated markets.          

What is the outlook for the industry in the current financial year?

 From the limited standpoint of the current fiscal, the outlook for the industry is pretty bullish. I believe the industry is at the cusp of great change. This change will play out over a 3-4 year time frame at the end of which we are likely to see a rather transformed sector. A good number of MFIs would have become ‘Small Finance Banks’; the Postal Bank would be in place; the BC model would have matured with many banks sharply increasing their direct exposure to microfinance clients. Even the way microfinance is defined would have changed to cover many more customer segments.

Another game changer would be the MUDRA Bank which, if things go as planned, would become a dominant driver of both fund flows and policy towards the microfinance sector.     

Have MFIs got out of the crisis they have faced in Andhra Pradesh and Telangana; If so, how? If not, when do you expect these issues to be resolved?

For the most part, the industry has moved on. The Andhra-based MFIs were financially stressed and a few could not deal with that. The worst sufferers of the crisis have been the low-income households of Andhra/Telengana. With the veritable exit of MFIs from the region, availability of micro-credit has dramatically reduced and money-lenders are doing well.          

 How many MFIs across the country so far transformed into NBFCs so far?

 Practically all significant MFIs today are NBFCs. Both in terms of gross loan portfolio (GLP) and number of clients the share of NBFC-MFIs is about 95 per cent of the industry total.   

What are regulatory problems MFIs are facing at present?

Over the past four years or so, for the NBFC-MFIs, the RBI has put in place a comprehensive and robust framework of regulations. The NGO-MFIs, of course, remain unregulated. A suitable law needs to be enacted for that purpose.    

What proactive measures the sector expects from the government to maintain its growth momentum?

 A stable and supportive policy environment is critical for sustained growth. With that, the industry can maintain its momentum. Another essential requirement is enhanced equity flows from domestic sources. For this, some Government support would be of value.          

As a self regulatory organisation, what aspects MFIN is currently looking into?

Responsible lending has to be the mantra for the industry. Very rapid growth can lead to process failures and overleveraging of vulnerable clients. The industry and MFIN as the SRO have to always be very watchful of what’s happening on the ground.

prashanthreddy.c@thehindu.co.in

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