Is govt policy deteriorate borrower’s attitude not to pay loan?
How MFI will survive if they don’t collect money and distribute?
This has nothing to do with borrowers and their repayment habits …they still have to repay , failing which they will have to pay interest …its ONLY for the institution not to CLASSIFY it as substandard …
dont go by press headlines…kindly read the articles yourself
the headlines are designed to generate negativity and mostly are written by scribes with limited understanding of the subject !
Yes, I believe a certain section of media and opposition is trying to precipitate a mini-crisis of defaults in some areas. Even RBI is unknowingly doing more damage by premature rules on potential defaults. I am not a fan of MFI sector as such but political meddling is the last thing it needs.
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What would be the short term impact of demonetization on Ujjivan and other MFI’s?
a. What is the ground reality regarding MFI collections
b. My view is that MFI’s are expending energies on collections, would someone have a different view if they are focused on both collections and lending too
c. My view is their revenues (combination of existing and new revenues) will be impacted significantly in Q3, and marginally in Q4 -
What would be the medium to long term impact of demonetization on Ujjivan and other MFI’s?
a. Would MFI’s have a future given that with more borrowers getting their financial paperwork in order the current set of MFI borrowers could potentially borrow from NBFC’s and 2nd rung private sector banks at far lower rates of interest as compared to MFI’s?
b. All banks & NBFC’s, especially the private sector banks would also be aggressively targeting the MFI borrowers segment given that all banks are flushed with funds and they need to aggressively lend and some part of MFI borrowers that are getting their papers sorted out will definitely be a target for the private sector banks
c. On an positive note, some part of the money lender’s business will also go to MFI’s
Views from informed members will be very much appreciated
Thanks
Disc: Very small investment made in Ujjivan
- Ujjivan is present in 24 states with no state contributing more than 14-15%. Collections have been good since last one month. Diversification will help it long way
- I am not looking for next 6-12 months for that will be difficult as growth is significantly affected due to demon. Also OPEX will rise disproportionately on account of conversion in to SFB. Samit Ghosh will do whatever he seems right from long term perspective so expect more costs on conversion.
- Now I see demon as blessing in disguise. If u see mgt. interviews they are way ahead on technology. Even if demon had not happened they were going to install bio-metric ATMs all over india. Had demon not happened it would have been rather difficult for them to make people use technology - now its a lot easier.
- Target customer of ujjivan needs service, easiness and TRUST. which forget PSUs , not pvt. banks find it comfortable.
- In one previous media interaction before IPO – Samit Ghosh pointed out financial inclusion in india started in 1985 where target was middle, upper class india. I consider same thing will happen in unbanked and unserved India now.
- My whole rationale of investment in Ujjivan has been as they start to function as SFB their cost will decline over next 2-3 years which will be passed to borrowers. No person can grow by borrowing at 20%+. After few years say 3-5, I consider they will offer loans at around 15% which will mean prosperous India emerging. Even HDFC give personal loans at 15% in urban areas.
- Be sure that under Samit Ghosh Ujjivan wont take any short cuts. Again In an interview he pointed out that want to build liability side by taking deposits from their target borrowers which will be difficult unlike Bandhan, equitas which are all taking wholesale deposits.
Disc: Invested since listing. Forms 7% of pf. Will look to increase in 2017.
Indian Microfinance in 2016 – A Timeline
in FINANCE December 31, 2016
The year 2016 has been a mix of good news and bad news for the microfinance sector in India with impressive Ujjivan and Equitas IPOs and acquisitions but clouded in disarray over the demonetisation impact that triggered massive non-repayment of loans in uttar Pradesh and Maharashtra.
Here is a chronology of all events in Microfinance sector in 2016:
Jan 6, 2016: Amsterdam-based multi-country microfinance operator CreditAccess Asia raises $30 million from Hong Kong-based private equity firm Olympus Capital Asia, heralding the first fundraising in 2016. CreditAccess is the parent company of Bangalore-based MFI Grameen Koota.
Jan 7, 2016: Microfinance major Bandhan turned into a bank formally kickstarted its banking operations.
Jan 11, 2016: New private sector IDFC Bank buys 9.99% stake worth Rs.8.5 Crore in ASA International India Microfinance, which is a division of Dhaka-based ASA that operates in over 12 countries.
Feb 2, 2016: Symbiotics, a Switzerland-based PE firm issued bonds worth $22 million to meet fund requirements of Annapurna Microfinance based in Odisha, ESAF Microfinance and Investment (EMFIL) in Kerala and Tamil Nadu and Satin Creditcare Network Limited, a MFI based in Delhi state.
Feb 7, 2016: Muhammad Yunus, Nobel Laureate and pioneer of microfinance, said a separate microfinance regulatory authority similar to Bangladesh Microfinance Regulatory Authority would help Indian microfinance sector. Currently, RBI regulates the NBFC-MFI units in India.
Feb 10, 2016: Small finance bank (SFB) licensee Disha Microfin said it would raise about Rs.300 crore to restructure its ownership in order to comply with the RBI norms for foreign shareholding. The central bank’s norms allow foreign shareholders own up to 49% of SFBs.
Feb 12, 2016: Telangana government has decided to revive microfinance lending in the state on SEWA (Self Employed Women’s Association) model and provide Rs.25 crore for distribution in the districts of Hyderabad and Medak in 2016-17 Financial Year.
Feb. 15, 2016: Buddy, an online micro-lending startup that supports students with loans for e-shopping, riases Rs.3.4 crore in pre-Series A funding from Blume Ventures with participation from Tracxn Labs. Buddy is owned by GaragePreneurs Internet Pvt Ltd.
Feb 19, 2016: Bangalore-based MFI Ujjivan Financial Services raises Rs.300 crore from a group of investors, in a pre-IPO placement to reduce its foreign shareholding to turn into a Small Finance Bank (SFB) as per RBI approval conditions.
March 1, 2016: Budget 2016-17 allows NBFCs to claim tax deductions on the provisions for Non-Performing Assets (NPAs) up to 5% of total income. Banks currently enjoy 7.5% tax breaks on NPAs. Also tax norms on securitisation of portfolio were changed to give tax benefit, which may encourage more securitisation deals going forward.
March 2, 2016: Government of India clarified that NBFC microfinance companies will continue under the regulation of RBI and not MUDRA as said a day before. In a statement on March 1, 2015, a day after the Budget, the finance ministry had said that the MUDRA Bank will regulate all MFIs creating confusion in the MFI sector.
March 2, 2016: DCB Bank, earlier known as Development Credit Bank, acquires a 5.81% stake in Odisha-based Annapurna Microfinance for Rs 9.99 crore (about $1.5 million).
April 11, 2016: SBI FMO Emerging Asia Financial Services Funds acquires 10% stake in Delhi-based MFI Satin Creditcare Network. The private equity firm is a collaboration between SBI Holdings, Japan, and Netherland Development Finance Company.
April 22, 2016: SKS Microfinance raises Rs.2,800 crore by selling its receivables to investors in the 4th quarter, which is 80% more than it did in the same quarter last year.
April 26, 2016: Chennai-based MFI Equitas Holdings raised Rs.720 crore in its IP, in addition to Rs.650 crore it received from anchor investors ahead of the IPO. The IPO, second in India after SKS in 2010, was oversubscribed 57 times in the high net worth individual category, 15 times in the institutional investor segment, and 1.3 times in the retail investors.
April 27, 2016: Shares of SKS Microfinance reach the highest in 52-weeks at Rs.607 on BSE in intra-day trade on expectation of strong quarterly performance for the quarter ended March 2016 (Q4).
April 27, 2016: Janalakshmi raises $150 million in a fund-raising eent led by US-based private equity firm TPG.
April 29, 2016: Equitas Holdings, which made a debut on the stock market in April, said it has got the formal licence from RBI to operate a small finance bank. It was given an “in-principle” nod by RBI to start an SFB in 2015.
May 5, 2016: Hyderabad-based MFIs SHARE Microfin Ltd and Asmitha Microfin Ltd decide to swap certain businesses, pending approval from Competition Commission of India (CCI). Both operate in several states, including Andhra Pradesh and Telangana.
May 10, 2016: Ujjivan Financial Services raises Rs.885-crore IPO, oversubscribed nearly 41 times, listed in exchanges at 10% higher than the IPO price at Rs.231.90 per share.
May 12, 2016: MUDRA invested Rs.50 crore in A-rated senior tranche of a securitized portfolio of microloans issued by Janalakshmi Financial Services (JFS), a Bangalore-based microfinance institution (MFI), which is on its way to become an SFB soon.
June 5, 2016: SKS Microfinance changes its name as Bharat Financial Inclusion Ltd., leaving behind its microfinance baggage inherited from the AP crisis in 2010.
June 14, 2016: SKS Microfinance, Spandana Sphoorty Financial Ltd and Sambandh Financial — all RBI-regulated NBFC-MFIs forced to shut down in few districts of Jharkhand saying they were not licensed. They were allowed to re-open when the RBI gave clarification that they were allowed to do micro-credit business anywhere in India, including Jharkhand.
June 15, 2016: CIBIL, the Credit Information Bureau launched a Microfinance Institutions bureau that would add 55 million rural accounts to it, which means an addition of 60% of the data would cover rural borrowers.
June 23, 2016: Odisha-based Annapurna MFI raises Rs.35 crore from Netherlands-based Oikocredit.
June 28, 2016: India’s third largest private sector bank Axis Bank enters Urban Microfinance segment to provide collateral free credit to low-income women groups called ‘Axis Sahyog’. Launched in Pune, it plans to commence urban microfinance operations in 85 branches across Bengaluru, Chennai, Kolkata and Mumbai.
July 10, 2016: IFC (International Finance Corporation) a World Bank investment arm announced investment of Rs.140 crore in Grameen Koota and Rs.340 crore in Janalakshmi Financial Services (JFS), both Bangalore-based microfinance institutions (MFIs).
July 12, 2016: Aavishkaar Goodwell Funds have exited their stake in Suryoday Microfinance.
July 13, 2016: New private bank IDFC Bank acquires Chennai-based MFI Grama Vidiyal Microfinance for an undisclosed amount, in a first-of-its-kind transaction, where a bank has taken over a microfinance institution (MFI) and made it a subsidiary. Grama Vidiyal is the fifth-largest MFI in India and has a customer base of 1.2 million, operating from 319 locations across 65 districts of Tamil Nadu, Kerala Karnataka, Puducherry, Maharashtra, Gujarat, and Madhya Pradesh.
July 22, 2016: Indian mututal funds ICICI Prudential Mutual Fund, HDFC Mutual Fund, Kotak Mutual Fund, Reliance Mutual Fund and SBI Mutual Fund invested about Rs.1,000 crore in secured debentures issued by MFIs — Equitas Microfinance (Equitas), Janalakshmi Financial Services (JFS); SKS Microfinance (SKS) and Ujjivan Financial Services (Ujjivan).
August 30, 2016: Ratan Tata, chairman emeritus of Tata Sons, Vijay Kelkar, former finance secretary and Nandan Nilekani, co-founder of Infosys and the architect of Aadhaar, come together to start a microfinance institution (MFI) called Avanti Finance. In 2013, Kumar Mangalam Birla’s daughter too started an MFI named Swatantra.
Sept 23, 2016: A Special Judge and Inquiry Commissioner in Kerala ordered a probe against SNDP Yogam general secretary Vellappalli Natesan over alleged irregularities in the utilisation of funds secured from Kerala State Backward Classes Commission for micro-finance operations based on a petition by Leader of the Opposition V.S. Achuthanandan.
October 1, 2016: Kotak Mahindra Bank buys 99.49% stake in Bengaluru-headquartered BSS Microfinance Pvt Ltd for ₹139.20 crore, second deal after IDFC Bank bought out Tamil Nadu-based Grama Vidiyal Micro Finance Ltd in July.
October 24, 2016: India’s RBL Bank acquires a 9.99% stake in Uttar Pradesh-based Utkarsh Microfinance, that has been given SFB license by RBI.
Nov. 8, 2016: PM Narendra Modi announces demonetisation bringing microfinance industry to cash crunch and chronic delinquencies running into hundreds of crores for each Big MFI and numerous losses for smaller MFIs.
Nov 14, 2016: Microfinance institution Ujjivan Financial Services receives the final approval from the Reserve Bank of India (RBI) to start small finance bank operations.
Nov. 18, 2016: India Infoline Finance Ltd (IIFL Finance), an NBFC, said it will acquire Bengaluru-based microlender Samasta Microfinance Ltd. for an undisclosed amount.
Nov. 21, 2016: RBI provides 60-day relief to MFIs struggling to collect repayments on their loan dues due to a shortage of cash.
Nov 28, 2016: Varanasi-based Utkarsh Micro Finance, an MFI, has received final licence from The Reserve Bank of India (RBI) to start operations as Small Finance Bank (SFB) named as ‘Utkarsh Small Finance Bank Ltd’ and is likely to start banking operations in early 2017.
Dec. 19, 2016: The Maharashtra government constitutes a special investigation team (SIT) to inquire into the operations of microfinance companies in the state.
Maha CM clarifies
Bullish on Microfinance companies, few days ago, Capital first said that they are not impacted…only 5% portfolio in cash rest no problem…also now race is of NIM earnings as PSU starts reducing rates.
Disclosure : invested in capital first
explain it in simple hindi/english plz
Can any member be kind enough to translate the content of CM speech in English?
Thanks in advance.
Broad Points
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Many MFIs are there but trust only RBI approved MFI
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MFIs are good, play very important role in Rural Economy and women empowerment.
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Good MFIs will be protected while bad errant ones will be punished.
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If not MFIs then who will lend money in rural areas.
Is it related to CM speech ??
Yes. These were the main points of Maharastra CM in the video that was posted earlier. The key point is separating MFIs into good and bad based on whether they are approved by RBI or not, and then taking action against the bad MFIs who are troubling people.
A lovely article interview with Ratna Vishvanathan of MFIN explaining the current crisis in MFI & how they r coping with it,
http://www.civilsocietyonline.com/business/mfis-are-coping-with-note-ban/
Thanks @Vivek_6954 for sharing this wonderful article!
Will request anyone who has any interest in MFIs to please take time to read this. Just to share a few key points (in my opinion) from it -
"Our model is a collection and disbursement one. It is not an attempt to work around the banking system. It is very imperative for disbursement to happen because MFIs don’t take deposits. They only collect and disburse. It’s an old model but a fragile one primarily because MFIs borrow from banks at commercial interest rates ranging from 12 to 18 percent. So they have to repay the banks. It’s all MUDRA (Micro Units Development & Refinance Agency) money. They pay the women who take small tab sizes. Liquidity has to be constant. If one part stops, the entire cycle gets disrupted. So MFIs have started disbursing smaller amounts of cash just to maintain liquidity in the system.
It’s important for glitzy financial papers to understand this model. This is the only place where women, who are marginalised and don’t have a voice, can get unsecured funds through a regulated and formal framework."
- Gives great insight into why MFIs have such high rates of interest - obviously MUDRA constitutes only one source of funding but gives a good understanding of the borrowing costs.
- Point on constant liquidity clearly highlights the risks to the sector which I may have underestimated as well. Demonetization was as big a threat as any other (this is a way bigger threat than political interference spoken by most people as MFIs with diversified loan-books should be able to manage those situations in any 1-2 states) to the business model of MFIs
On RBI circular for giving a 60 day extension to classify NPAs
“Unfortunately, the circular was worded such that everybody, including the media, took it to mean that your loan has been deferred by two months so you can pay after two months. And this misinformation went viral. the states of UP, MP, Maharashtra, Uttarakhand and a bit in Karnataka misinformation created problems for us. Small political functionaries, and its party agnostic, began encouraging women to default. That is why I have been meeting senior functionaries in the political and bureaucratic hierarchy. In Karnataka it worked because the chief secretary’s office issued letters to all district collectors that these are MUDRA loans and have to be paid back else they will affect the NPA of banks. On the whole, the bureaucracy and the government have been receptive.”
- Highlights great work done by MFIN to alert government officials of political meddling in business
- MUDRA Loans means NPA of MFIs also becomes a NPA of Banks - this should be valid to an extent if there are very high level of defaults otherwise MFIs can probably repay MUDRA loans from overall collections i.e. Mudra and Non-Mudra (and I doubt if MFIs actually categorize loans as per the source of funding)
Size of MF Sector/Industry
“The actual share of NBFCs/MFIs is only 34 percent. For SHGs it is 38 percent, though here there is an overlap factor between SHGs and MFIs so its really not all 38 percent. Banks account for 22 percent. With the small finance banks going to move out in the next three or four months, 50 percent of today’s sector will again go into the banking sector. But if you take the overall pie it’s almost close to Rs 2 lakh crores gross loan portfolio size.”
- NBFC -MFIs and SFBs (previously NBFC - MFIs) have ~34% share in 2 lakh gross loan portfolio
- Above estimates are in line with earlier stated facts on NBFC MFIs and SFBs having 60,000 cr gross loan portfolio as of Mar 2016 (remember these numbers when going through Ujjivan DRHP). Interesting point to note is that this only constitutes ~34% of overall MF lending - not sure how many people were aware of this earlier, I wasn’t.
In my view, MFIs might have just dodged a massive bullet i.e. demonetization. Q3 and Q4 numbers obviously need to be monitored to confirm improvement in collections and disbursements. Also, I didn’t know much about MFIN earlier but they definitely appear to be doing some great work as a Self-Regulated Organisation.
Majority of MFI loans r extends towards businesses which deals with day to day living n their weekly installments ranging from 100 to 500, with this in mind I believe there is enough liquidity in market to manage repayment n disbursement. This is as per what I saw in few villages in Rajasthan n Karnataka. Looks like MFI Will turn it around faster than expected. It is a personal opinion with a bias.
Invested in MFI sector
Any sensible person can understand that those people can not afford to clear loans at such interest rate. Why do local money lenders not give loans to these people even though they charge same interest rate?
They have more ground level knowledge on these people. It is their money.
Even though correspondents of MFI have same knowledge, they have no problem. Why? it is not their money.
Biggest bubble will burst in 2-3 years.
This kind of things should be done by charitable organisations but not listed companies taking money off investors.
You can not make everyone a business man (entrepreneur) by just giving money.
how local money lenders rate 36% ++ and MFI rate of around 20% is same ???
i hope you know the sector well !
Local moneylenders charge 18-24% in my area (personal experience).
Hope…you know the sector well.