HT: From women-centric NGOs to corporate-like operations: Microfinance records 200% jump: July 31,08 | Micro Finance / Micro Credit

From women-centric NGOs to corporate-like operations: Microfinance records 200% jump.......Deepti Chaudhary Bangalore

BANKERS MAY still be debating the idea of consolidation in the banking sector, but India's microfinance institutions, or MFIs, that cater to the credit needs of the rural and urban poor, are all ready for it. Experts say with the top 25 players in the business accounting for nearly 75 per cent of the total MFI business, it will become imperative for small entities, who cater to a customer base of less than 5,000, to join hands to scale up operations and strengthen execution.

The imperative for scale is evident in the statistics: the current requirement of credit for the poor is Rs 2.4 trillion and the available credit is less than onetenth of that: about Rs 20,000 crore.

Two in five Indians do not have a bank account and 81 per cent of villages do not have a bank within a distance of 2 km, according to the Union finance ministry. It is not surprising then that MFIs in the country such as SKS Microfinance Pvt. Ltd are clocking growth in excess of 200 per cent every year. "Consolidation is certainly on its way. It is not effective for small MFIs, particularly when a few players are getting backed by investors," says Chandra Sekhar Ghosh, chief executive, Bandhan, a Kolkata-based MFI. Bandhan disburses nearly Rs 90 crore a month.

In the last two years or so, MFIs have been transforming from being women-centric NGOs to corporate-like operations that are backed by venture capital, or VC, firms. Last year, Lok Capital Llc., a Mauritius-based ven ture capital fund, raised $22 million (Rs 94.6 crore) from institutional investors to fund MFI plays in India. "People are talking about consolidation and some momentum is building up in the segment. It will happen in two years," says Venky Natarajan, investments director, Lok Advisory Services, a technical advice and due diligence unit for the group's investments.

The fund has so far invested in four Indian MFIs, including Hyderabadbased Spandana Sphoorty Financial Ltd, Bangalore-based Janalakshmi, New Delhi's Satin Creditcare Network Ltd and Arohan from Kolkata. Some MFIs, which raised their first round of VC funds as early as March 2006, are moving into credit-related businesses.

Hyderabad-based SKS Microfinance has rolled out a health insurance product for the poor, for which it has tied up with ICICI Lombard General Insurance. It will soon announce its initiative to start offering other third party products also, says Mohit Bhatnagar, operating partner, Sequoia Capital India. "We are very bullish on the segment. We are a long-term investor and will soon build a customer base from two million to 1015 million," he says.