Microfinance Across Regions

Earlier this year, the Reserve Bank of India (RBI) released the Malegam Committee report, an important development for the MFI sector in the country. The report has paved way for the creation of a separate category of nonbanking financial corporations (NBFCs) operating in the microfinance (MFI) sector and meeting certain specified requirements; these companies will be designated NBFC-MFIs. The NBFC-MFIs will be treated as “priority lending” sector and find it easier to obtain loans from banks. More important, the committee has exempted the NBFC-MFIs from the state moneylending acts and stipulates that the sector will be regulated by the RBI. The exemption helps remove the NBFC-MFIs from the control of the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act which last quarter restricted interest rates and the debt collection methods followed by the microfinance industry. The report instead controls the interest chargeable to the borrower by putting a margin cap based on the size of the MFIs and limits the charges levied by the MFIs to processing fee, interest, and insurance charges.

SKS Microfinance’s Financials
The only listed player in the sector in the country, SKS Microfinance, recently reported its Q3 performance. Q3 revenues grew 44% over the year to Rs 384.68 crore (~$83.8 million) compared with Rs 266.22 (~$58.0 million) earned a year ago. Profits during the quarter fell to Rs 34.15 crore (~$7.4 million) from Rs 55.45 crore (~$12.1  million) reported a year ago, attributed to a voluntary reduction in interest rates from over 26% to 24.55%.

The company ended the quarter with a total member base of 7.7 million spread across 19 states. The incremental loans disbursed during the period amounted to Rs. 1,590 crore (~$346 million), falling 22% over the year. Their gross loan portfolio increased 33% over the year to Rs. 5,028 crore (~$1.1 billion).

SKS’s Expanding Product Offerings
The company is expanding the number of products it offers to borrowers. The Sangam Stores project is being tested to provide working capital finance to the small grocers, also known as kirana store owners, in India. Last year, SKS has also entered in to a partnership with the German wholesaler, Metro, to supply member grocers from a special inventory of 250 stock-keeping units (SKUs). The pilot not only helps the grocers have a more efficient supply line, it also enables the retailer to address the vast rural market in the country.

SKS also began a housing loan that members can tap into for repairing or making improvements to their homes. The loan has a repayment period of three to five years depending on the repayment capacity of the individual. The housing loans are expected to be rolled out more widely during the year. SKS is also giving out loans for other products, including mobile phones, solar-powered lamps and water filters through a corporate tie-up with Hindustan Unilever.

SKS’s stock is trading at Rs 546.45 (~$11.91). It touched a high of Rs 1491.50 (~$32.50)  in September of last year.

Bandhan Microfinance
Bandhan is another microfinance in the country working to alleviate poverty and empower women. Bandhan was founded by Chandra Shekhar Ghosh in 2002 in a West Bengal village called Bagnan. Today, the MFI has a presence in 18 states with more than 1,550 branches and has close to 3.6 million members. Last month, the organization dispersed Rs 439 crore (~$95.7 million) worth of loans, taking its loans outstanding to Rs 2,430 crore (~$529.5 million).

Bandhan focuses on helping women who do not have any land or equivalent capital assets and earn less than Rs 3,500 (~$76.3) a month in rural areas, Rs 5,000 (~$109.0) in small towns or Rs. 7,000 (~$152.5) in a big city. The loans disbursed by the MFI are meant to help these women find a means to engage in income-generating activities ranging from agriculture to handicrafts to operating small businesses.

The organization plans to reach 8 million members by 2014 with a portfolio of over Rs 60 billion (~$1.3 billion) outstanding.

Bandhan has been on the lookout for funding of Rs 100 crore (~$22 million) for expansion of its operations. Earlier this year, the International Finance Corporation (IFC) announced plans to provide $35 million in funding to the organization. In 2009, Bandhan was valued at $100 million when it had received $10.7 million. SIDBI owns a 12.2% stake in the organization. Three other public charitable trusts, the Financial Inclusion Trust, the North East Financial Inclusion Trust, and the Bandhan Employees Welfare Trust, together hold about an 87% stake.

The earlier IPO by SKS has prompted other MFIs in the country to evaluate the IPO route for additional funding. Bandhan claims to be watching the market to see the market’s reaction and progress of SKS before deciding on taking that route.

Banco Compartamos’s Financials
It is not just the Indian market which has evaluated the IPO route for an MFI. The Mexican MFI, Banco Compartamos, was the first Latin American MFI to raise an IPO in 2007. Compartamos was launched with a village banking pilot program in 1990 to provide support to establish family enterprises and income-generating activities among Mexico’s marginzalized communities. Its IPO helped raise $468 million in funding for the organization, which helps over 1.96 million clients.

In the recently reported results, the MFI reported Q4 net profit of MXN 515 million (~$41.6 million) compared to MXN 516 million (~$42.5 million) reported a year ago. Net profit for the year grew 26% to MXN 1.88 billion (~$ 154 million). The bank’s total loan portfolio grew 28% over the year to MXN 9.76 billion (~$803 million).

The bank is looking to expand its reach to more than 2 million clients in the current year. They are also eyeing international operations in other Latin American nations.

Their stock is trading at MXN 83.50 (~$6.94) and had touched a 52-week high of MXN 108.90 (~$9.05) in December of last year.

According to a recently released M-CRIL Microfinance Review, India has the largest microfinance industry in the world, with 27 million borrower accounts. But it is not just India that is benefiting from the work of the MFIs. In 2009, nearly 3,590 MFIs worldwide reached 190 million people, of whom 128 million were among the world’s poorest. The number has grown sixteen-fold since 1997, when 7.6 million people had received aid. Of note, within the industry has been the work done by Muhammad Yunus’s Grameen Bank in Bangladesh, which has disbursed loans worth $10.4 billion since inception. Recently, however, Bangladesh’s political parties have been taking a closer look Grameen Bank’s work. The government is citing an accusation by a Norwegian aid agency that funds were misused by the bank and their 25% stake in the bank to initiate removing Yunus from his position as managing director. Many believe the act may be in retaliation to Yunus’s political views. Surely, the move will not benefit the needy in the country. To alleviate the poor and empower the needy, it is imperative that governments not over-regulate MFIs.