MICROCAPITAL BRIEF: Indian Banks Seek Personal Guarantees from Microfinance Institution (MFI) Executives As Condition of Debt Restructuring

Indian banks that have entered negotiations with microfinance institutions (MFIs) regarding restructuring wholesale microfinance debt have reportedly insisted on personal repayment guarantees from MFI directors [1]. These negotiations follow the slowdown in debt repayment by MFI clients in the state of Andhra Pradesh that began in late 2010 and resulted in several MFIs lobbying to restructure their debt obligations to commercial banks [2].

Several MFI executives have reportedly expressed reluctance to agree to the personal guarantees. Mr Kishore Kumar Puli, managing director of Hyderabad-based Trident Microfin Private Limited, exclaimed “It is impossible to give guarantees of that big an amount as my whole net worth will not cover even a fraction of that,” referring to Trident’s debt of INR 1.26 billion (USD 28.5 million) that is set to be recast [1].

The Central Bank of India, a retail bank owned by the government, reportedly has sanctioned a loan of INR 1 billion (USD 22.5 million) to Bhartiya Samruddhi Finance Limited (BSFL), a microlending subsidiary of India’s BASIX Group, against personal guarantees of its directors including BASIX chairman Mr Vijay Mahajan [3]. However, the loan may be mooted by a loan from the Small Industries Development Bank of India (SIDBI), a government-owned bank providing credit to medium and large-scale MFIs, in the amount  of INR 7.5 billion (USD 166 million), which would largely be intended to restructure existing debt [4].

The aggregate amount of wholesale microfinance debt to be restructured is estimated to be INR 30 billion (USD 674 million).

By Jacqueline Foelster, Research Associate

About Trident Microfin Private Limited (Trident): Formerly Annapurna Financial Services Private Limited, Trident is a microfinance institution established in 2007 and headquartered in Hyderabad in the Indian state of Andhra Pradesh. Trident aims to provide comprehensive financial and business solutions to enterprises and low-income individuals, particularly women and microenterprises. In 2009, Trident reported to the US-based, nonprofit data provider Microfinance Information Exchange (MIX) total assets of USD 38.8 million, a gross loan portfolio of USD 28.8 million, return on assets (ROA) of 3.9 percent, return on equity (ROE) of 19.7 percent and 175,000 borrowers.

About Central Bank of India: Established in 1911, the Central Bank of India (CBI) is retail bank owned by the government. It is present in 27 states and 4 union territories and oversees a network of 3,563 branches and 195 extension counters. As of March 2010, it had a return on assets of 0.4 percent and total assets of USD 790 million.

About Bhartiya Samruddhi Finance Limited (BSFL): Bhartiya Samruddhi Finance Ltd. (BSFL) is a regulated non-banking finance company (NBFC) based in Hyderabad, India, that was founded in 1997. It is part of the BASIX Group, which provides financial services, agricultural/business development services and institutional development services to rural poor households. According to the Microfinance Information Exchange (MIX), BSFL reported a gross loan portfolio of USD 223.2 million, total assets of 302.6 million and 1.1 million active borrowers as of March 31, 2010.

Source and Additional Resources:

[1] Livemint, “Microfinance firms’ loan recast hits a roadblock”, http://www.livemint.com/2011/04/05223453/Microfinance-firms8217-loan.html?atype=tp%20-%20news

[2] MicroCapital.org Brief, January 14, 2011, “Urged By Local Politicians, Microfinance Borrowers in India’s West Bengal State Stop Repaying Their Loans”, http://www.microcapital.org/microcapital-brief-urged-by-local-politicians-microfinance-borrowers-in-india%E2%80%99s-west-bengal-state-stop-repaying-their-loans/

[3] Livemint, “Basix gets 100 core loan on personal guarantees of directors”, http://www.livemint.com/2011/03/06211327/Basix-gets-100-crore-loan-on.html?atype=tp

[4] MicroCapital.org Brief, March 14, 2011, “For-profit Microfinance Institution (MFI) BASIX Group Negotiating $166m Loan from Consortium of Banks Led by Small Industries Development Bank of India (SIDBI), http://www.microcapital.org/microcapital-brief-for-profit-microfinance-institution-mfi-basix-group-negotiating-166m-loan-from-consortium-of-banks-led-by-small-industries-development-bank-of-india-sidbi/

MicroCapital.org Brief, March 22, 2011, “Indian Banks Collaborate on Restructuring Loans to Microfinance Institutions (MFIs), SKS Opts Out,” http://www.microcapital.org/microcapital-brief-indian-banks-collaborate-on-restructuring-loans-to-microfinance-institutions-mfis-sks-opts-out/

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

MicroCapital Universe Profile: Central Bank of India, http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=The+Central+Bank+of+India+%28CBI%29

MicroCapital Universe Profile: Bhartiya Samruddhi Finance Limited (BSFL), http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bhartiya+Samruddhi+Finance+Ltd+%28BSFL%29

Browse the MicroCapital Universe and add your entry to the wiki at http://www.microcapital.org/microfinanceuniverse/tiki-index.php

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