MICROCAPITAL BRIEF: Small Industries Development Bank of India (SIDBI) to Commit $5.8m in Equity, Loans to Small Microfinance Institutions

The Small Industries Development Bank of India (SIDBI), a state-owned bank, has committed INR 300 million (USD 5.8 million), 30 percent of its microfinance development fund, to small Indian microfinance institutions (MFIs) that have not received commercial funding since the liquidity crisis began in the microfinance sector in the Indian state of Andhra Pradesh late in 2010. The new capital is intended to facilitate the raising of resources by MFIs from banks and overseas investors. SIDBI has sanctioned money to eight MFIs outside of Andhra Pradesh and plans to disburse the money in April. SIDBI will offer direct equity to non-banking financial companies (NBFCs) and subordinated debt to MFIs licensed under section 25 of the Companies Act. SIDBI will offer the debt for seven years and charge an annual interest rate of 8 percent. If any of the MFIs converts into an NBFC before the debt is paid, the debt will be converted into equity. Recipients will also enjoy a three- to four-year moratorium on the principal payment. Sushil Muhnot, chairman and managing director of SIDBI, reportedly stated that the bank may be open to investing in small MFIs in Andhra Pradesh after assessing the credit profile and financial health of the state.

According to a statement attributed to Mukul Jaiswal, managing director of Cashpor, a probable recipient of INR 50 million (USD 974,000) from the SIDBI money, the MFI will be leveraged to raise five times the amount in loans from banks. Two other likely recipients are West Bengal’s Society for Model Gram Bikash Kendra and Assam’s RGVN Credit and Savings Program.

SIDBI plans to invest a total of INR 500 million (USD 9.7 million) by the end of the 2012 fiscal year.

By Charlotte Newman, Research Associate

About Small Industries Development Bank of India (SIDBI)
The Small Industries Development Bank of India (SIDBI) was established by the Indian Parliament in 1990. SIDBI offers products and services in areas including direct finance, international finance, government subsidy and fixed deposits. Its clients include institutions, investors and entrepreneurs. SIDBI is an active participant in the Indian microfinance sector, where it provides credit and capacity building grants to large- and medium-scale microfinance institutions (MFIs). As of September 30, 2010, SIDBI reported total assets of INR 480 billion (USD 9.75 billion).

Sources and Additional Resources:

The Economic Times: “Sidbi Offers Rs 30 Crore Support to Microfinance Companies,” http://articles.economictimes.indiatimes.com/2012-03-27/news/31245234_1_nbfc-mfis-microfinance-companies-bandhan-financial-services

Business Standard: “Equity Fund Offers Hope for Microfinance Firms.” http://business-standard.com/india/news/equity-fund-offers-hope-for-microfinance-firms/468787/

MicroCapital.org story, March 27, 2012, “MICROCAPITAL BRIEF: 9.2m Microfinance Borrowers in India Have Defaulted Since 2010,” https://www.microcapital.org/microcapital-brief-9-2m-microfinance-borrowers-in-india-have-defaulted-since-2010/

MicroCapital.org story, March 7, 2012, “MICROCAPITAL BRIEF: SKS Microfinance Borrows $20m from Small Industries Development Bank (SIDBI), Focuses Efforts Outside Andhra Pradesh,” https://www.microcapital.org/microcapital-brief-sks-microfinance-borrows-20m-from-small-industries-development-bank-of-india-sidbi-focuses-efforts-outside-andhra-pradesh/

MicroCapital Universe Profile: Small Industries Development Bank of India (SIDBI)
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Small+Industries+Development+Bank+of+India+%28SIDBI%29

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

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