MUDRA Bank can be positive for microfinance sector: ICRA

Mumbai: With Non Banking Finance Companies-Microfinance Institutions (NBFC-MFIs) likely to have overall debt of Rs 360 billion to Rs 420 billion by March 2016, re-finance from MUDRA Bank could constitute a major portion of the overall debt of the MFIs, according to rating agency ICRA.

As per ICRA estimates, the MFI sector, including self-help groups (SHGs) and NBFC-MFIs, had a total portfolio of Rs 780 billion as on 30 September 2014, ICRA said in a report in Mumbai.

More finance. Andrew Middleton/Flickr

More finance. Andrew Middleton/Flickr

It said, assuming an annual growth rate of 10-15 percent for SHGs and 30-35 percent for NBFC-MFI for the next two years, the overall microfinance portfolio is likely to cross Rs 1 trillion.

"The NBFC-MFIs alone are likely to have overall debt of Rs 360-420 billion by March 2016. Refinance from Micro Units Development Refinance Agency (MUDRA) Bank could constitute a significant proportion of the overall debt of the MFIs," it noted.

It further said that since MUDRA Bank is likely to have access to low cost funds from short falls in priority sector lending, it is likely to pass on the same, leading to lower funding costs for players.

Given that the present funding costs of MFIs vary from 12-16 percent with the median cost of funds being 14 percent, NBFC-MFIs cost of funds for MFIs could come down by 100-400 bps depending on the share of funding an MFI is able to receive from MUDRA bank.

However, it pointed out that it would be important to understand the criteria MUDRA Bank could follow for onward lending to players in the MFI space with respect to interest rates and allocation among various players.

A single regulator for all entities engaged in microfinance could lead to adoption of a uniform code of
conduct for all players in the industry, which could also define the best practises for delivery of financial services to the under served, it added.

Currently, there are differences in regulations by different regulators.


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Updated Date: Mar 06, 2015 15:06:26 IST

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