MICROCAPITAL BRIEF: Bank Loans to Indian Microfinance Institutions Slow Down in First Half of Fiscal Year

According to data released by the Reserve Bank of India, bank loans to Indian microfinance institutions (MFIs) and self-help groups (SHGs) dropped during the first half of the fiscal year to INR 22,480 crore (USD 4.35 billion). From April to September 2011, outstanding loans to microlenders declined 16.4 percent, compared to a 7.5 percent growth during the first half of the previous fiscal year. From October 2010 to September 2011, credit to the segment declined 4 percent, compared with the previous year’s 27 percent growth.

“We are trying to diagnose why MFIs are not getting funds…It is not that banks are reluctant and do not have liquidity but the fact is no lending is happening,” according to an unnamed senior corporate credit executive quoted by Livemint, an Indian affiliate of the US-based Wall Street Journal.

On the other hand, Puli Kishore Kumar, managing director and chief executive officer of Indian MFI Trident Microfin Private Limited, was quoted as having said, “The bankers are not able to digest the impact of the [Andhra Pradesh repayment] crisis. They believe that uncertainty continues in the sector and refrain from lending to us…The authorities need to convince boards of commercial banks about the need to lend to MFIs.”

By Kristha Abores, Research Associate

About Reserve Bank of India (RBI):
Established in 1935, the Reserve Bank of India (RBI) undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While all microfinance institutions (MFIs) and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5 percent stake in the outfit, RBI owns a one-percent stake in NABARD as of 2011.

About Trident Microfin Private Limited:
Trident Microfin Private Limited (formerly Annapurna Financial Services Private Limited) is a microfinance institution that was established in 2007 and is headquartered in Hyderabad, Andhra Pradesh, India. The goal of the company is to provide comprehensive financial and business solutions to enterprises and low-income individuals, particularly women and microenterprises, in a socially, economically and environmentally sustainable manner. As of June 30, 2011, Trident Microfin reported total assets of USD 39 million, a gross loan portfolio of USD 29.5 million and 214,940 active borrowers.

Sources and Additional Resources:
[1] Livemint.com: “Sharp drop in bank loans to MFIs, infra sector,” http://www.livemint.com/2011/11/01233122/Sharp-drop-in-bank-loans-to-MF.html

Reserve Bank of India: “Sectoral Deployment of Bank Credit – September 2011,” http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=25321

Reserve Bank of India: “Statement 1: Deployment of Gross Bank Credit by Major Sectors,” http://rbidocs.rbi.org.in/rdocs/content/DOCs/01SIBC311011.xls

MicroCapital.org article, June 6, 2011, “MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Mandates Personal Guarantees from Promoters of
Microfinance Institutions (MFI) Looking to Restructure Debt,” https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-mandates-personal-guarantees-from-promoters-of-microfinance-institutions-mfi-looking-to-restructure-debt/

MicroCapital.org article, March 14, 2011, “MICROCAPITAL BRIEF: India’s Andhra Pradesh State to Tighten Local Microfinance Institutions
(Regulation of Moneylending) Act,” https://www.microcapital.org/microcapital-brief-indias-andhra-pradesh-state-to-tighten-local-microfinance-institutions-regulation-of-moneylending-act/

MicroCapital.org article, January 26, 2011, “MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Subcommittee Proposes Regulation for
Microfinance Institutions (MFI),” https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-subcommittee-proposes-regulation-for-microfinance-institutions-mfi/

MicroCapital.org article, December 17, 2010, “Local Government in Indian State of Andhra Pradesh Considers Additional Microfinance Regulation, Requires Disclosure of Operational Procedures,” https://www.microcapital.org/microcapital-brief-local-government-in-indian-state-of-andhra-pradesh-considers-additional-microfinance-regulation-requires-disclosure-of-operational-procedures/

MicroCapital.org article, November 16, 2010, “Under Pressure from State Government of Andhra Pradesh, Indian Microfinance Institutions Agree to Cap Interest Rates at 24%,” https://www.microcapital.org/microcapital-brief-under-pressure-from-state-government-of-andhra-pradesh-indian-microfinance-institutions-agree-to-cap-interest-rates-at-24/

MicroCapital Universe Profile: Reserve Bank of India (RBI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29

MicroCapital Universe Profile: Trident Microfin Private Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Trident+Microfin+Private+Limited

Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/

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