New Delhi: Faced with heightened regulatory scrutiny, many microfinance institutions (MFIs) in the country are now exploring different ways, including the debt route, to meet funding requirements, reports PTI.
A number of micro lenders, especially small sized, are facing credit crisis as state-run as well as some private sector banks are not lending funds to them in the wake tighter regulatory scrutiny, industry experts told PTI.
"MFIs need diversified routes to get credit and have been exploring various funding sources. In the backdrop of recent controversies in the sector, MFIs are facing some tighter norms and have been looking all the other means of means, including equity and debt," Microfinance Institutions Network (MFIN) chief executive Alok Prasad said.
MFIN is a self- regulatory group of NBFC MFIs working to promote microfinance sector in the country.
Market sources, who did not want to be identified, said many banks have almost stopped giving credit to MFIs (but not across the country) and consequently they are now forced to look for other ways of funding, like selling non-convertible debentures.
The country's largest MFI SKS Microfinance, however, said it does not face any credit problem. "We are fine. We don't have any issue," a SKS spokesperson said.
According to media reports, the Hyderabad-based two MFIs - Share Microfin and Spandana Spoorthy - have put on hold their plans to raise funds via initial public offerings (IPOs) due to recent upheavals in the sector.
However, worried over recent upheavals in the MFI sector on account of high interest rates small lenders charge and their strong-arm loan recovery tactics, many players have put on hold their plans to raise funds through the capital market route and now are exploring other avenues.
After a Rs1,600 crore successful IPO by the Vikram Akula-founded SKS Microfinance, some leading microfinance firms were mulling to hit the capital market.
The microfinance sector in the country has faced heightened regulatory scrutiny in recent weeks. The ministry of finance has recently advised public sector banks to monitor lending rates of MFIs.
In addition, the government of Andhra Pradesh has passed an ordinance that significantly enhances regulatory control on MFIs in the state, reflecting the concerns regarding what the provincial government perceives are high interest rates being charged by the MFIs, and the coercive means of recovery they adopt.
Additionally, the Reserve Bank of India (RBI) has initiated a review of the priority sector status that is currently being accorded to bank lending to the MFI sector. The RBI has also announced formation of a committee to assess MFI functioning.
MFI sector's dependence on Andhra Pradesh is high, since the state's share of loans outstanding represents nearly 35% of the sector's total portfolio.
It is possible that any potential change in regulations may impact the sector's growth, access to funding, asset quality, and operational costs over the near-to-medium-term.
According to rating agency Crisil, MFIs are the powerful mean to extend formal credit services to India's under-served rural poor. MFIs help raise the income levels and standards of living of the poor, thus, contributing to financial inclusion.