@ajax “either secured through the asset or by blocking the credit card limit…”
Personal loans are not secured. HDFC Bank will give you loans based on your salary, which you can use it to visit Thailand. If you do not repay, they cannot take back your experience. What they can do is i.) use recovery agents, ii.) block your salary account, iii) mark you as a wilful defaulter, but not take away other assets to recover. Blocking your card limit has nothing to do with securing the loan. It still remains unsecured. So the 8-9% difference is not due to secureness of loans.
Reason also cannot be higher OPEX because theoretically you arguing that MFI are getting rewarded for been inefficient. A bank can have higher interest rates because their OPEX is high. The causality is the other way - they can afford high OPEX because they charge so high.
Thanks for putting down so concisely everything. On your two key takeaways:
“Trend of decreasing yields…due to scale, digitization, technological investments”. Is this not negative for MFI? MFI have sustained because their customers are technological impaired. By digitalization are you not educating your customers to use apps/ATM/mobile which works as a positive externality for commercial banks. So a commercial bank, thanks to the MFI educating its customers can now poach much easier.
“…was always and mostly due to government regulations…” Government regulations rarely come on their own. If any sector earns supernormal profits, other will take notice and efforts will be made to enter the market or lobby for changes and lobbying is very much part of free market.
“…their customer base (local pan wala, garland vendor, small sellers etc.)”. I think you are looking at a very small subset of MFI customer base. I do not have data, but I would have thought rural woman are large part of the customer base. Difficult to believe that a woman in rural WB or Tripura where Bandhan is big is not going to the bank because it is inconvenient . Life is tough for them and they will not be inconvenienced if they have to walk another 15kms to a bank where they will get a 15% loan. They go to MFI because they are unbanked and exploited.
“People often compare MFIs to sub-prime lending whereas in reality it is last mile lending”
Think you are emphasizing on the convenience factor for MFI for their success but reality is lack of options and exploitation.
Do not know much about MSME lending, but analogy of MSME and MFI customers looks wrong.
Anyways, those are my thoughts. I still think that MFI can charge more because of any inefficient society and structure and that margins will come down substantially bringing down valuations. The arbitrage play is on how long inefficiencies will sustain and how much can you (investors included) milk. Nothing wrong; money does not have emotion.
High margins are not because of secureness of loan or convenience of service. If those were sufficient conditions then you would have had MFIs in Scandinavia.