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FEATURE

Micro lenders turn the page
    with banking licences

Five years after microfinance groups faced                     Yadav."Moreover, microfinance players have been focus-
a crisis of confidence, their business model                   ing on financial inclusion, which was bound to attract
is seen strong enough by RBI to grant                          RBI's attention."
banking licences to nine of them
                                                               Disha Microfin is an Ahmedabad-based micro-lender that
Microfinance institutions, or MFIs, have come a long way       has received RBI's in-principle approval to start a small fi-
since the 2010 crisis in Andhra Pradesh that temporarily       nance bank. With asset under management of Rs 200
grounded SKS Microfinance, the leading micro-lender of         crore, it has operations across four states: Gujarat,
that time and the only one listed on the stock market. In      Rajasthan, Madhya Pradesh and Karnataka. The Andhra
the last 18 months, the Reserve Bank of India (RBI), which     Pradesh crisis also made MFIs improve their corporate
sees itself as a conservative regulator, has granted bank      governance practices, which is reflected in the low
licences to nine MFIs: while Bandhan got a universal bank-     promoter's stake in most of these entities; in some cases,
ing licence in April 2014, eight micro-lenders received the    it is around 10 per cent.
nod to operate small finance banks.
                                                               "Since 2010, RBI has in consultation with the industry in-
Clearly, the regulator has noted the work done by MFIs in      troduced several regulations to protect customers," says
extending credit to the last mile where many established       Samit Ghosh, CEO & MD, Ujjivan, another MFI that has
banks failed to reach. Notwithstanding the Andhra Pradesh      received a small finance bank licence.
crisis that was triggered by rising debt stress among clients
forcing many of them to commit suicide, MFIs flourished in     Helpful measures
many states and showed that theirs is a viable business
model. This in turn attracted investors who took significant   "In any fast-growing industry, meaningful regulation is
equity stakes in these entities. The International Finance     needed to ensure that growth continues, and that is what
Corporation, the private lending arm of the World Bank, for    we saw happened in 2011 after the crisis. There were
instance, has invested in many of these small finance banks    clear guidelines on pricing and scope of business, and
that have received the regulator's approval, apart from        these have helped the microfinance industry grow since
being an investor in Bandhan.                                  then," says R Baskar Babu, CEO of Suryoday Micro Fi-
                                                               nance which has also got a licence to start a small finance
"The microfinance industry has matured into a formal           bank."Most MFIs, especially the ones that have got the
lending channel over the years because the business            licence, are run by professionals."
model has been robust to focus on the unbanked, the
rates are fixed and there is a code of conduct that has to     The micro-lender is present in seven states, operating
be followed," says Disha Group Director Rajeev                 through 164 branches and serving over 600,000 custom-
                                                               ers. Its major investors include DWM, Aavishkaar
                                                               Goodwell, IFC, Lok Capital, HDFC and HDFC Life.

BANKING FINANCE |                                              NOVEMBER | 2015 | 53

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