Skip to main content

MFIs see slowdown in bank funding despite a fall in the cost of funds

By
 MFIs see slowdown in bank funding despite a fall in the cost of funds
The average cost of funds for MFIs is 12-15 per cent, depending on their size
Despite a fall in the cost of funds over the past year, banks remain shy of lending to microfinance institutions (MFIs), especially mid-size and small-size ones.In general, about 60 per cent of funding for MFIs come from banks. The rest was met through instruments such as securitisation (the marke t for which had dried after demonetisation) and debentures, among others.
However, most banks have now restricted their funding to large MFIs, said entities in the segment.“In the past year, the cost of funds for MFIs has gone down by 60-70 basis points. However, banks have remained cautious in lending, due to their own problems. As a result, a lot of MFIs are looking at options like non-convertible debentures, which is long-term lending; the amount is also bigger,” said Rakesh Dubey, president, Micro Finance Institutions Network.
The average cost of funds for MFIs is 12-15 per cent, depending on their size. “Over the past year, many public sector banks which had been actively lending to MFIs have stayed away. This is also true of private banks. There is a slowdown in funding. Also, since there is a margin cap of 10 per cent for MFIs, banks can’t increase rates despite rise in demand.
“Several MFIs are now also experimenting with options like co-lendng to meet fund requirements,” said H P Singh, founder and managing director (MD) of Satin Creditcare Network.According to Reserve Bank rules, MFIs’ lending rates cannot be more than 10 per cent over their cost of funds or 2.75 times of the average base rate of five large banks, whichever is lower.
The concept of co-lending is like bank consortium lending when two MFIs lend jointly to a borrower.“The problem of funding is more with small MFIs. Also, now that 10 MFIs have graduated into banks, the overall funding has not much been impacted for big MFIs,’’ said Manoj Kumar Nambiar, MD, Arohan Financial Services.
The gross loan portfolio of non-bank MFIs stood at Rs 427 billion as on end-December 2017, about a third of the total size of the MFI sector, at Rs 1,233 billion.
The Business Standard, New Delhi, 01st May 2018

Comments

Post a Comment

Popular posts from this blog

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

By
  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...
Post a Comment
Read more

Luxury carmakers urge clarity on GST rates to boost festive season sales

By
  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...
Post a Comment
Read more

Sebi proposes tighter norms for green bond third-party reviewers

By
  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...
Post a Comment
Read more