Plummeting profits, huge operational costs, accumulation of losses and many more negative sentiments are now considered as synonyms when we come across any news regarding the Micro Finance Institutions and SKS Micro Finance takes the lead in this down slope trend. But to stay afloat, microfinance promoters are now sailing into new lending areas: from cycles to phones to gold and houses. This throws up a whole new set of challenges for them as well as for regulators.
About 70 to 80% of commercial funds for MFIs come from banks and much of this is priority sector lending which are 2-3 percentage points cheaper than the normal bank loans. And certain limits of these funds are bound to be lended as microfinance, that is why as per RBI rules clearly states that if more than 15% of the loans are lended for non-microfinance portion then these sectors will become ineligible for these cheaper funds. So it becomes a challenge for the promoters to follow the rules as well as to keep churning profits which are already strained that is why now they have focused on other strategy of tweaking products and operations.
In the way the new loans are delivered, there are three differences from the way MFIs operated:
· One, the loans are larger,
· Two, they are being directly given to the individuals, not through groups, who bore initial responsibility of checking credit-worthiness and repayments and
· They are for asset purchases backed by collateral.
A promoter of one of the MFI from the north clearly states his intention when he says “We will now be looking for people with monthly salaries. Not the moong phali - walas (peanut sellers)”.But this poses a grave risk for the priority sector funds being used for other purposes.
All these years, the microfinance industry promoted itself as a potent means to pull people out of poverty but now, in its bid to survive, the industry is looking beyond the poor. Is this mission drift?
Different promoters have different view: Ujjivan’s founder, Samit Ghosh thinks, “If you start focusing on middle-income households, the focus on the target customer base gets diffused” but if you listen to what Vasudevan of Equitas says “Our mission is how to improve the quality of life for clients who were not able to access the formal financial sector till now. That doesn’t change”
Now as the MFIs are looking to diversify, so the question arises are they doing so out of duress or do they actually see an opportunity to help the poor in the same old way but with different products? This is the question which can be only answered as the time passes. So let’s wait and watch.