Microfinance institutions set to see further consolidation
The microfinance institutions (MFI) sector, subjected to a blizzard of critical regulatory changes over the past two years – both at the key market of Andhra Pradesh and by the Indian central bank – is set to see another round of consolidation, according to industry veterans.
Experts feel that smaller MFIs will be either lapped up by larger players or will become marginalised as the issue of scalability and fund crunch are impacting their operations. Quite a few MFIs have been backed by venture capital investors and the consolidation may come as a blessing for these firms.
“The smaller ones (MFIs) are short of funds and it would get difficult for them to operate, unless they merge with larger ones,” said a director of a Bihar-based MFI who didn’t wish to be named.
Inorganic consolidation is already under way with deals such as IntelleCash Microfinance Network acquiring majority stake in Kolkata-based microlender Arohan Financial Services, as well as the proposed tripartite merger among Spandana Spoorthy, Share Microfin and Asmitha Microfin.
A report by the industry body Microfinance Institutions Network (MFIN) says that on a pan-India basis, the number of branches reduced 13 per cent during FY12 from the previous fiscal and the bulk of it was attributed to Andhra Pradesh where the MFIs’ branch network shrank 20 per cent.
“The process of consolidation has to be taken as a process of evolution. We have to consider the regulatory environment as well,” said Alok Prasad, CEO of MFIN. “What we are likely to see is that over 200 MFI players, who are fragmented, will see a large compliance load and margin pressure. These things will impact the industry,” he added.
As of March 31, 2012, there were 9,743 MFI branches across 26 states and the 10 largest MFIs operated more than three-fourth of the total branch network. Out of the total number of branches across the country, the share of non-AP MFI branches rose to 47 per cent in FY12, from 36 per cent in FY10.
The deteriorating AP portfolios severely impacted the flow of funds to MFIs from banks and investors. Funding for the microfinance industry has largely been through three broad categories of institutions – private commercial banks, PSU banks and other financial institutions such as Small Industries Development Bank of India (SIDBI), NBFCs and development financial institutions (DFIs) beside other private funds. Of these, public sector banks have been the biggest lenders to the MFI sector.
However, as risk perceptions, vis-à-vis the microfinance industry, improved in the last six months of FY12, and bank funds and equity began to flow into the sector. But there was a consolidation in fund flow too, with small MFIs having portfolio size of less than Rs 100 crore finding it difficult to raise fresh equity or debt, as per the MFIN report.
SKS Microfinance continued to be the largest MFI in terms of client base (although a big chunk of it was inactive), followed by Bandhan, Spandana and Share Microfin. The top 10 MFIs covered 82 per cent of the total client base, even though each of them, except Bandhan, witnessed a decline in the number of clients in FY12. On an aggregate basis, the client base of the top 10 MFIs decreased by more than a fifth in the last financial year.
During 2011-12, the industry continued to struggle with the repercussions of the Andhra Pradesh Microfinance Institutions (regulation of money lending) Ordinance/Law, 2010.
On a pan-India basis, all indicators such as clients, gross loan portfolio (GLP), disbursements, branches, employees, portfolio quality and financial performance ratios, deteriorated.
Another notable trend is that the microfinance industry, which was earlier concentrated in Andhra Pradesh and a few southern states, has now spread its base with a significant presence in Tamil Nadu, Karnataka, West Bengal, Orissa, Maharashtra, Madhya Pradesh, Gujarat, Uttar Pradesh and Bihar.
(Edited by Sanghamitra Mandal)
Government’s ambitious ‘Startup India’ campaign is essentially geared towards promoting the entrepreneur
Small Industries Development Bank of India is engaged in financing and developing of micro, small and medium enterprises sector. It offers term loans, as well as investment products, such as sub-debt, equity, convertible debentures, optionally convertible cumulative preference shares, zero coupon bonds etc. The firm also offers receivable finance schemes that cover discounting of bills of exchange/invoices arising out of the sale of indigenous components, parts, sub-assemblies, accessories, and intermediates; flexible assistance for capital expenditure; finance for modernization. It manages venture capital funds for providing venture capital assistance to MSMEs in the areas of auto components, textiles, life sciences, clean technologies, retailing, light engineering, information technology, services, etc.; composite loan schemes; and institutional products and services. The company was founded in 1990 and is based in Lucknow, Uttar Pradesh. with additional offices in Delhi, Maharashtra and Tamilnadu.
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