Microfinance from a Bankers Perspective

[Sudhir Upadhyay]

Dear friends,
I am working in a Private Bank in India. For a bank which is onlending to the MFIs who in turn onlend the same to the ultimate borrowers has to see the microfinance in an entierly different way.For us are concerned about whetehr the money which we are giving to the MFIs is safe or not.

[Edgar M. Mendoza]

Why can't you go straight to the end users? That way you will have more control.

If you have to pass through an MFI then you ask them, their track record. What is their performance in a particular area such as, lending to farmers or fishermen or vendors? What is their control mechanism to make sure that money lent out is used for its intended purpose?

[Sudhir Upadhyay]

yaa , that is fine, we are already doing this. The main probem with the MFIs is that the Key Man Risk is very high and in most of them the second line of management is also absent. In some of the MFIs it is even found that they are taking loans from various lenders and the same money is used to repay the loans of the other lenders. The leverage ratio of the MFIs is vey high which makes the loan very risky for the bankers.

[A RAMANATHAN]

Commercial banks [Public sector/ private sector/Foreign banks] find it easy to increase outreach by providing bulk loans to MFIs. As par published information by NABARD, commercial bank loan provided to MFIs stood at Rs.1422.45 crores [outstanding] as on 31 March 2007.

Commercial banks look for rating by rating Agencies, capial adequcy, repayment performance, business plan, products and services offered, Good Governance,area of operation, and other factors.

A Ramanathan

[Sudhir Upadhyay]

This is true that commercial banks find it easy to increase outreach by providing bulk loans to MFIs but the number of MFIs on which a baker can have comfort are very limited. What i have seen in the sector is that some banks are more comfortable with partnership loans.