Microfinance - SIDBI

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Microfinance - SIDBIs PerspectiveLending
Investment

• P. K. Saha
• Chief General Manager

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Nurturing of MFIs

• 1994
• SIDBI launched its microfinance programme on
  pilot basis to
• tap the huge potential of unmet demand for credit
  in unorganized and informal sector
• serve its mandate for promoting, financing and
  developing the micro, small and medium
  enterprises in India
• 1999
• Upscaling and re-orientation of microfinance
  programme of SIDBI.
• SIDBI Foundation for Micro Credit (SFMC), a
  specialized deptt. set up to create a national
  network of strong, viable and sustainable Micro
  Finance Institutions (MFIs) from the informal and
  formal financial sector.

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Strategy of SIDBI

• Utilise existing grassroot institutions for
  channelising credit
• Institution building of MFIs
• Build access and capacity at grassroot level,
  instead of focusing on subsidies
• Provide customized financial assistance and
  capacity building support
• Encourage investment in microfinance by formal
  financial sector

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Strategy of SIDBI

• Shift towards commercial sources of microfinance
• Nurture and equip financial intermediaries to
  deliver quality micro finance services
• Scientific appraisal, instead of collateral
  based lending
• Build favourable policy and regulatory framework
  to facilitate orderly growth

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Features of MCS Core product of SFMC

• Focus on poor, mainly women
• Customised need based package of loan, grant and
  equity to partner MFIs
• Capacity building of beneficiaries, MFIs and
  sector/ training institutions
• Capacity Assessment Rating (CAR) and Capacity
  Building Need Assessment (CBNA) prior to sanction
• Market driven flexible approach for credit
  delivery with focus on financial sustainability

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Products of SIDBI
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Growth Phase

• Modified products to match up the growing needs
  of the sector.
• Corpus Support for Transformation (CST), a new
  product developed specifically for small
  grassroot NGOs operating in underserved areas.
• Risk Fund for wholesaler MFIs to encourage
  operations in underserved regions.
• Loan Syndication
• Microenterprise promotion
• Portfolio Risk Fund

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Growth Phase

• Equity Funding - SIDBI Growth Fund for MFIs
  (Corpus of Rs.50 crore) set up to
• equity investment in well-managed corporate MFIs,
  in the form of quasi-equity / mezzanine finance
  in medium rung non-corporate / start-up
  institutions
• resource support to Private Equity (PE) funds
  for equity investments in Indian MFIs
• Corpus increased to Rs. 500 crore
• Specialized Microfinance branches at 7 locations

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Pre-requisites for SIDBI while lending
Good track record of promoters
Acceptable rating grade
Adequate capitalization
Good portfolio quality
Compliance with AML, KYC, defaulters list
Professional management
Quality of Audited financials
Satisfactory credit opinion
Number of lenders
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Pre-requisites for SIDBI while investing in
equity
Pre-requisites for lending
Good growth potential
Realistic projected financials
Legal form
Profitability
Attractiveness of valuation
SIDBI stake lt 20
Exit options
Quality of other investors
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Concerns

• Transparent and fair practices
• Credit discipline
• Fair practices at field level
• Competition / multiple financing / client overlap
• Information sharing
• Governance and Ownership Issues
• Boards not diversified
• Ownership (?) in case of MFIs having PE investors

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Concerns

• Transaction costs
• Cost-effective delivery
• Leveraging technology
• Capital -intensive grant funds required in
  initial stages
• Regulation
• Conducive policy environment needed given the
  present size and scale
• MF Bill yet to be enacted
• Self-regulation

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Concerns

• Capital Adequacy
• Low level, for the sector at large
• Improvement in case of larger MFIs
• Mid-scale MFIs still capital deficient
• Need to have quasi-equity funding
• Regional / balanced growth

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Thank You