Rapid growth of MFIs’ gross loan portfolio sets alarm bells ringing

http://www.livemint.com/Industry/MiPf3aFSQgmpuJzOeMMWHN/Rapid-growth-of-MFIs-gross-loan-portfolio-sets-alarm-bells.html

Last Modified: Mon, Jun 27 2016. 10 55 AM IST

Microfinance companies extended heavier loans to their customers in the last financial year, data showed, raising concerns the sector that emerged from a crisis not far ago may be growing too fast yet again for its own good.

The loan portfolio of microfinance institutions (MFIs) stood at  Rs 53,233 crore as of 31 March 2016, up from Rs 28,940 crore a year ago, according to data from the Microfinance Institutions Network (MFIN), a self-regulatory organization for the industry. However, this 84% jump in loans comes against a much more modest 44% increase in the number of clients, suggesting the average loan per customer is on the rise.

The number of branches and employees too have grown much slower during the year, at 22% and 36% respectively.

Ratna Vishwanathan, chief executive officer of MFIN, linked the loan growth to the increase in client base and income levels. “Client base has increased by 44%, which is balancing out the increase in loan book. Also, general income levels have increased which led to such a high growth pattern,” said Vishwanathan.

Alok Prasad, a former chief executive officer at MFIN, did not agree. “Even if income levels are up, the jump is not enough to explain an 84% growth in the gross loan portfolio,” he said, adding the growth rates may be “something to worry about”.

Prasad said the MFI sector, which shrank after the Andhra Pradesh microfinance crisis of 2010, regained momentum only after new rules from the Reserve Bank of India (RBI).

In October 2010, following allegations that aggressive loan recovery tactics of MFIs in Andhra Pradesh had driven many borrowers to suicide, the state government promulgated an ordinance to curb MFI activities, sending ripples across the country. Bad loans piled up as borrowers refused to pay back and banks declined to give loans to MFIs. In December 2011, RBI announced new regulations for the industry.

“Growth is a function of individual institutions and good leadership. But such high levels of growth is absolutely worrisome. Compared to the client base growth, the loan book growth is much higher, indicating more money is given to the same client, which is a risky situation,” said Prasad.

The institutions that have seen the sharpest increase in their gross loan books are among the largest in the sector. Some are in the process of converting to small finance banks after receiving RBI’s in-principle approval last year.

Janalakshmi Financial Services saw its client base nearly double, but its gross loan portfolio grew at a pace that was nearly double the growth in its client base.

Bharat Financial Inclusion Ltd (formerly known as SKS Microfinance) reported an 84% growth in the gross loan portfolio on a 27% growth in its client base. Grameen Kota Financial Services Pvt. Ltd and Equitas Holdings saw their portfolios grow by 75% and 53% respectively. Among the larger firms, Ujjivan Financial Services saw the most conservative growth at just under 25%.

Emails sent to Ujjivan, Janalakshmi, SKS and Grameen Kota on Thursday went unanswered. P. N. Vasudevan, managing director of Equitas, said the increase in loan portfolio was because of an increase in the ticket size of loans.

One possible reason for the increase in ticket size of loans is a change in lending rules.

In April 2015, RBI eased rules for MFIs, raising total indebtedness limit of a borrower to Rs 1 lakh, double the previous limit of Rs 50,000. This allows lenders to give out more loans to the same customers. The new rules state that MFIs can disburse loans to a borrower with a rural household annual income of Rs 100,000 as compared with the earlier limit of Rs 60,000. In case of customers in the urban or semi-urban regions, the annual income limit has been raised to Rs 160,000 from Rs 120,000 earlier. In the first disbursement cycle of the loan, MFIs can give up to Rs 60,000 out of the total loan amount. This limit was fixed at Rs 35,000 earlier. In subsequent cycles, the companies can now disburse up to Rs 100,000 as compared with Rs 50,000 earlier.

Low levels of penetration have aided rapid growth, said a bank official familiar with the microfinance segment.

“Market penetration is low which gives huge potential to grow. Current growth is aggressive; however, if we compare the pre-crisis days and today’s situation, there are positive developments such as more responsible lending and a wider geographical spread,” said this official requesting anonymity, as he is not allowed to speak to the media.

The official, however, cautioned that MFIs still serve the most vulnerable sections of society, meaning the underlying risk remains high.

P. Satish, executive director of Sa-Dhan, the second self regulatory body for the microfinance sector along with MFIN, pointed to some other likely factors.

“A large part of the growth is accounted for by bigger MFIs who are on their way to becoming small finance banks, though growth shouldn’t come at the cost of neglecting loan procedures. Also, since banks have to fulfil priority sector lending norms, they give loans to big MFIs which are further given to small borrowers, thus helping banks meet their regulatory requirements,” said Satish.

To be sure, credit quality of the MFI loan portfolio remains steady, and has shown no significant uptick in delinquencies.

The percentage of the portfolio overdue for 30-180 days is at 0.25% for rural areas and at 0.33% for urban areas, according to Kalpana Pandey, managing director and chief executive officer of Crif High Mark Credit Information Services, a credit bureau.

Pandey said that however, “more borrowers serviced two or more loans during the year”—one of the reasons for growth in the loan portfolio. MFIN data show that 64% of loans were given for non-agriculture activities. In terms of the regional distribution of the loan portfolio, the south accounts for 35%, east 15%, north 25% and west 25%.

No additional capital for 5 years after successful IPO: Ujjivan CEO

http://www.financialexpress.com/article/markets/indian-markets/no-additional-capital-for-5-years-after-successful-ipo-ujjivan-ceo/243557/

No additional capital for 5 years after successful IPO: Ujjivan CEO

Ujjivan Financial Services, which will be transformed into a small finance bank (SFB) by March next year with around 190 bank branches, would not require additional capital for the next five years if the currently launched IPO becomes successful in the primary market.

By: Mithun Dasgupta | Kolkata | Published: April 27, 2016 5:27 AM

Ujjivan Financial Services, which will be transformed into a small finance bank (SFB) by March next year with around 190 bank branches, would not require additional capital for the next five years if the currently launched IPO becomes successful in the primary market.

The Bengaluru-based microfinance company intends to raise about Rs 900 crore from the IPO route as it has already raised Rs 292 crore in a pre-IPO placement. “Following the initial public offering, we are confident of mopping up a total of Rs 1,200 crore from the market. After raising the amount we will not require any additional capital for the company in the next four-five years,” Ujjivan Financial Services MD & CEO Samit Ghosh told FE.

The IPO, which opens on April 28, consists of a fresh issue of equity shares, aggregating up to `358 crore by the company and an offer for sale of up to 24,968,332 equity shares by Elevar, FMO, IFC, IFIF, MUC, Sarva Capital, WCP and WWB.

“A major part of the IPO proceeds will be used to reduce foreign shareholding in Ujjivan by providing an exit route to some of the existing foreign shareholders. Around Rs 600 crore would come into the company from the proceeds. A portion of this will be utilised in building the physical infrastructure like IT, ATM and channel for the upcoming small finance bank,” Ghosh said.

The micro-lender had an original foreign shareholding of about 90%. The offer, if fully subscribed, will bring down foreign shareholding from the current 77% to nearly 45% following the RBI’s directive to bring down foreign investment in all SFBs below 49%.

Ujjivan Financial Services IPO: Concerns well captured

http://www.business-standard.com/article/markets/ujjivan-financial-services-ipo-concerns-well-captured-116042600662_1.html

Ujjivan Financial Services IPO: Concerns well captured

Given the strong financials and track record, long-term investors could consider the offer

Sheetal Agarwal

April 26, 2016 Last Updated at 22:46 IST

After the blockbuster debut of peer Equitas Holdings on the bourses last week, expectations are high on Ujjivan Financial Services' initial public offering (IPO) of equity. The issue which opens for subscription on Thursday and aims to garner up to Rs 882 crore, including a fresh issue of shares worth Rs 358 crore. The rest is an offer for sale by some foreign shareholders.

The proceeds from issue of new shares will be used to augment the capital base. Given the strong track record, healthy financials and reasonable valuations, investors with a long-term horizon could subscribe.

Given the similarities and timing, comparing Ujjivan and Equitas would be helpful. Both derive a significant part of their portfolios from the micro finance segment and both have bagged a Small Finance Bank (SFB) licence. Ujjivan is fourth largest among the country's micro finance institutions (MFIs) in terms of assets under management (AUM). Its market share was seven per cent as on March 2015, Equitas being close at five per cent, shows data from CRISIL Research.

Among the key reasons for their IPOs is to reduce foreign shareholding to the Reserve Bank's mandate of not exceeding 49 per cent for an SFB. This means that as with Equitas, foreign investors will not be participating in Ujjivan's IPO.

The difference between the two, albeit minor, is in the business model and return ratios. On the latter, Ujjivan is ahead. For the nine months ending December 2015, its average return on equity was 19.1 per cent, as against 13 per cent in the case of Equitas. Its business model explains the difference. Ujjivan derives a larger part of its portfolio (88 per cent) from the traditional group-lending MFI business; this is 53 per cent for Equitas (the rest comes from vehicle financing, home loans, etc). Since the MFI business yields higher margins, Ujjivan scores well in return ratios.

Ujjivan also has a more diversified geographical presence; Equitas has strong concentration in Tamil Nadu, from which comes 60 per cent of its AUM. In comparison, Ujjivan has presence in 24 states and Union Territories (through 470 branches). The east, west, north and south each account for 20-34 per cent of its AUM.

Ujjivan has started lending to the (individual micro) small and medium enterprises segment in the past three years. This, with the home loan segment, is 12 per cent of its overall portfolio. The company believes this portfolio will grow faster than the group lending business. While this is a positive, given the higher ticket sizes, this segment also carries higher credit risk and the company has started providing for this. Coupled with early recognition of bad and doubtful loans (from 150 days currently to 90 days), this will push up its credit costs in the coming quarters.

Also, as would be the case with any other entity, the transition to an SFB entails additional investment on branch upgradation and hiring, among others, and the need to maintain mandatory reserves, all of which will put pressure on overall profitability. Thus, its currently high growth rate (see table) and return ratios will head south in the next couple of years at least. While the management record provides confidence, an eye must be kept on the likelihood of rising competition from strong players in the SFB space.

Positively, the company aims to garner about 40 per cent of deposits from existing customers and tap newer ones in the low-middle class salaried and micro entrepreneur segments. Cost of funds will come down, as it can tap inter-bank funding and borrow from Nabard and MUDRA, among others. This, in turn, will support the margins. The actual impact will depend on the company's ability to quickly build a strong retail deposit base, as well as grow its loan book.

The valuations, however, more than capture the downside risk. On a post issue basis, the IPO is priced at 1.8 times the FY16 estimated book value, much lower than Equitas which trades at 2.8 times. SKS Microfinance, though a much larger entity, trades at about 5.5 times the FY16 estimated book.

Firms are now looking to invest in MFIs after RBI awarded small finance bank licenses

http://economictimes.indiatimes.com/industry/banking/finance/banking/firms-are-now-looking-to-invest-in-mfis-after-rbi-awarded-small-finance-bank-licenses/articleshow/51902839.cms

Firms are now looking to invest in MFIs after RBI awarded small finance bank licenses

By Atmadip Ray, ET Bureau | 20 Apr, 2016, 06.06AM IST

Grameen America, a not-forprofit microfinance organisation founded by Nobel Prize winner Muhammad Yunus of Bangladesh for helping women living in poverty in the US, receives 360-degree support from a diverse group of American corporations such as Apple Inc, Bank of America, Google Inc, Morgan Stanley, and Wells Fargo Community Lending & Investments.

The for-profit microfinance companies in India, by contrast, have been loners in their own backyard. They have rarely got funds from banks; those a bit fortunate got funding from overseas private equity funds only to find themselves under mounting pressure from investors to boost returns. Local investors were hardly interested in the business of micro-lending in the last decade. But that is changing.

The sector that makes credit accessible to the poor without collateral has started becoming more relevant to local corporations and institutional investors, such as banks, with Reserve Bank of India awarding eight out of 10 small finance bank licences to microfinance companies, validating their capability to deliver on the field. RBI has also allowed MFIs to work as business correspondents, creating a large cross-selling potential and opportunities for investors to leverage their equity better. Since January, two private sector banks — IDFC and DCB — purchased direct equity in MFIs and one more is believed to be exploring similar possibilities. Kerala-based gold loan nonbanking financial company Manappuram Finance acquired 71% stake in Asirvad Microfinance last year.

Banks as well as corporates are coming in as equity investors as they look to seize opportunities created by MFIs' last-mile credit delivery skills, says SKS Microfinance president Dilli Raj. "The distribution network strength that MFIs enjoy gives huge cross-selling opportunities," he says, suggesting MFIs as business correspondents could do demand aggregation for products such as consumer durables or even two-wheelers allowing both lenders and producers to cash in. Corporates shed their apathy towards MFIs after 2011 when RBI started regulating the sector, providing stability to it.

The likes of Bajaj Holdings, Tata Capital Growth Fund and electrical equipment maker Havells have come on board as investors in several MFIs in the last five years. Ananya Birla, daughter of industrialist Kumar Mangalam and Neerja Birla, invested a tiny part of her family fortune to build Svatantra Microfin, which facilitated loans of Rs 186 crore to 82,171 borrowers within four years of its formation. The Birla scion now dreams of converting Svatantra into a small finance bank. With microfinance companies showing the potential to grow unhindered at least for the next five years, more corporates and banks may look to partner them. The sector grew at 50%-plus over the last two fiscals taking the cumulative loan book size to over Rs 42,000 crore. The micro-lenders are generating cash surplus and there is a sense of economic stability. MFIs have penetrated just about onefifth of the market, leaving vast opportunity for every stakeholder, says Manoj Kumar Nambiar, president of Microfinance Institutions Network, or MFIN, a self-regulator that has developed a set of code of conduct for members to follow. "(They have) return on equity (ROE) greater than 15%, yearly growth of over 50% and social impact... evoking interest from the mainstream corporate sector," Nambiar says. The number of beneficiaries of loans from microfinance institutions stands at 2.88 crore.

The average loan size for each beneficiary has also grown to Rs 17,917 from Rs 14,409 last year. MFIs' outstanding borrowings stood at Rs 36,439 crore at the end of December 2015, representing an 86% growth, according to statistics released by MFIN. The story was vastly different even half-a-decade back. L&T Finance was the sole member of India Inc to explore opportunities in micro-lending since 2008. No other corporate was ready to take the risk in a sector that was not regulated and was largely dependent on overseas private equity funds for growth.

An administrative ordinance by the Andhra Pradesh government in 2010 to stop local MFIs from recovering money from borrowers had led to a collapse of many companies and crippled others. A big shift took place in the year that followed. RBI entered the scene with its set of rules for MFIs registered as nonbanking finance companies. Regulatory clarity, code of conduct and lending on the basis of borrowers' credit score were some of the factors, besides economic reasons, that unlocked the local investment floodgate into the industry. Microfinance also qualifies as priority sector lending and, hence, banks are keen to back micro-lenders.

Not only have they turned more liberal in lending to MFIs, those in the private sector are even buying direct stake in many institutions. IDFC Bank acquired a 9.99% stake in ASA International India Microfinance for about Rs 8.5 crore in January, the first investment by a lender. Two months later, DCB Bank took 5.81% equity interest in Annapurna Microfinance for Rs 9.99 crore. "Microfinance has become a good asset class with low default rate and, hence, a good source of diversification through bulk lending," says Abhijit Roy, managing director at Unitus Capital, which helps MFIs raise capital. The capital that flowed into the sector is helping it to be back on a robust growth path. It's a win-win for all stakeholders.

Borrowers get protected from monopolistic exploitation by money lenders, banks and companies get access to a bigger market, which they could have never reached, and investors get the capitalistic share of profit from the poor. Ujjivan raised $96 million in March last year from a group of overseas investors such as US's CDC and Bajaj Holdings, one of India's top 20 business houses. Tata Capital Growth Fund, India's leading private equity fund, QRG Enterprises, a holding company for Havells, and Vallabh Bhansali invested in Janalakhsmi in 2013. "Many corporates are keen to have a banking licence and they feel that with microfinance exposure under their belt, getting a banking licence could be easier," Roy said.

How microfinance got its mojo back - Economic Times

http://economictimes.indiatimes.com/industry/banking/finance/microfinance-industry-is-out-of-an-unprecedent-crisis-thanks-to-regulations-diligent-borrowers/articleshow/51886097.cms

Microfinance industry is out of an unprecedent crisis, thanks to regulations, diligent borrowers

By Shailesh Menon, ET Bureau | 19 Apr, 2016, 06.24AM IST

The aroma of flaming gingelly oil wafted through the air as 16 women employees of Thrissur based Global Chips & Foods braced themselves for another long day at work. A black wooden board, hung on a recently white-washed wall, listed out their day's chores: 20 kilograms of tapioca chips and 20 kgs potato chips.

The women — wearing maroon uniforms and white head-caps — were all raring to go. Their "company" had just secured orders from over a dozen supermarket chains, apart from countless retail outlets across Kerala and a few buyers from the Gulf and even Thailand. Microfinance industry is out of an unprecedent crisis, thanks to regulations, diligent borrowers Global Chips, started with an initial loan of Rs 5,000 from ESAF Microfinance nine years ago, logs a monthly production of 65,000 packets (of fries), sales turnover worth Rs 3 lakh and profit of around Rs 70,000. "Microfinance helped me build my company.

It provided me with money whenever I wanted it," says 44-year-old Sindhu Sethumadhavan, the proprietor of Global Chips, who pays Rs 1,410 every week on her outstanding microfinance loan of Rs 1.5 lakh. Sethumadhavan is part of a growing tribe of small entrepreneurs whose businesses were seeded by microfinance. This clan had shrunk in the wake of the Andhra Pradesh (AP) microfinance crisis of 2009-10, triggered by a series of borrower suicides, allegedly on account of unscrupulous MFI (microfinance institutions) practices of charging high interest rates and excessive lending, leading to increased indebtedness among poor borrowers, and turning to coercion to recover those loans.

The industry itself took some hard knocks. Asset under management (outstanding loans or gross loan portfolio) fell Rs 3,000 crore to close at Rs 20,500 crore in 2011-12. MFIs that had large-scale operations in AP suffered the most. Non-repayment of loans by borrowers (at the behest of politicians and other community leaders) resulted in AP portfolios of most MFIs declining by 35%.

"Post the AP crisis, there was a massive overhauling of practices. MFI were brought under strict rules and regulations," says Bindu Ananth, chair of IFMR Holdings, a leading financial inclusion platform. Microfinance, which was skulking in the corners of that unprecedented crisis, is now out and about. Of the 10 small finance bank licences given by RBI in 2015, eight were bagged by MFIs. And a bunch of MFIs are now preparing to launch IPOs.

"The greenshoots you're seeing now is a fallout of the AP crisis," says Ananth. One key reason for the resurgence of microfinance is the presence of diligent borrowers like Sethumadhavan, who says microfinance loans should not be used for personal purposes and were drawn by the strict measures put in place. They helped the industry rebuild faith and confidence among clients.

Crisis Management As it happened, the immediate aftermath of the crisis was painful.

"There was a lot of external intervention then. We could not even get in touch with borrowers who were willing to repay," reminisces S Dilli Raj, the CFO of SKS Microfinance, which suffered the most during the AP crisis. SKS witnessed a near-70% slump in its loan book when it was forced to exit AP.

"We had to shrink our loan book to make up for our losses in AP. Out of the Rs 1,496 crore we loaned out to borrowers in AP, we could only collect Rs 130 crore. We had to write off loans worth about Rs 1,300 crore over several quarters," Dilli Raj adds. The AP government was the first to review and censure.

The AP State Government Ordinance imposed stringent operating guidelines — mainly tightening screws around lending rates and collection mechanisms employed by MFIs till then.

Meanwhile, the RBI was waiting for the 'Malegam Committee Report on Microfinance' before listing out its own set of guidelines. The regulator turned in its first set of regulations in 2011 deeming for-profit MFIs as NBFC-MFIs (a new category of nonbanking finance companies). It also directed all MFIs to maintain sufficient 'net owned funds' and structure portfolios with 85% of lending to "qualifying assets." Microfinance industry is out of an unprecedent crisis, thanks to regulations, diligent borrowers

In subsequent amendments, the regulator put in place lending limits per borrower, capped interest rates, employed measures to reduce excessive indebtedness, explicitly stated tenure of loans and worked out loan repayment schedules. (See RBI Measures...). These moves seemed like a bitter pill then, but were the ideal remedy for the industry's ills. "Prior to the AP crisis, there were no rules governing microfinance industry.

There were no models or reference points in terms of lending rates or how much we could lend," says Equitas' founder PN Vasudevan, adding, "these mandates came only after the crisis; it gave the industry a blueprint to operate."

Visible Greenshoots The Indian microfinance industry is dominated by NBFC-MFIs with an 88% market share. These institutions have been grouped on the basis of their 'gross loan portfolio' (GLP). As per Microfinance Institutions Network (MFIN) data, there are 18 small MFIs with GLP less than Rs 100 crore, another 18 medium-sized MFIs with GLP between Rs 100 crore and Rs 500 crore and 20 large MFIs with loan book above Rs 500 crore.

Large MFIs account for nearly 90% of industry GLP. Even though the number of active MFIs has fallen from about 70 in the pre AP crisis era to just about 55 currently, the industry loan book has leapfrogged 130% to Rs 47,200 crore in 2014-15. Average loan ticket size (first disbursement) has also grown from Rs 14,800 to about Rs 18,000 currently, according to industry sources (see Back With a Bang).

Post the crisis, MFIs started spreading out their activity to newer territories. Instead of focusing on captive borrowers (which was banned by RBI when it introduced the 'twolender rule), the industry started approaching newer set of borrowers. This strategy widened their customer base. Borrowers too, warmed up to MFIs they had no other source to get non-collateralised debt.

"Loan portfolio of top 40 MFIs would tip Rs 70,000 crore by March 2017," predicts Krishnan Sitaraman, senior director, Crisil Ratings. "There's robustness in the system now."

MFIs, for their part, are keen to beef up their loan books as only that would increase their profitability. Prior to the AP crisis, MFIs used to lend at rates as high as 40%. This, however, ended immediately after the crisis.

Now, MFIs can charge a margin of 10% and add up cost of funds (margin of 10% + cost of funds) as interest on their loans. This formula pegs rates at 23-24%. "MFIs are trying to reduce their costs and mark up profitability by increasing loan volumes. This is turning out to be a good strategy as a few large funds have managed to bring down their rates to as low as 19-19.5%," says Ananth.

The rising profitability of large MFIs like SKS and Equitas is an indication that the industry has started capturing 'economies of scale', driving up loan volumes. The large MFIs are already seeing a jump in their operating margins.

After listing huge losses in 2012 and 2013, SKS turned around in 2014 (post write-off of bad loans) when it reported a PAT of Rs 70 crore. Last year, it reported profits of Rs 187 crore on revenues of Rs 724 crore.

Equitas Holdings, now on the road to becoming a publicly listed company, declared an adjusted PAT of Rs 107 crore last fiscal. The Rs 2,170 crore Equitas public issue — which closed bids on April 7 — was oversubscribed 17 times. Another MFI, Ujjivan Financial Services, is also preparing for a public issue to raise about Rs 650 crore.

Industry watchers expect more listings in the months to come as MFIs that have received 'in-principle licence' to start small finance banks (SFBs) are required to reduce foreign shareholding to 49%. Apart from Ujjivan and Equitas, Disha Microfin, ESAF Microfinance, Janalakshmi Financial Services, Suryoday Microfinance, Utkarsh Microfinance and RGVN North East Microfinance have received the regulator's nod to operate as SFBs.

"We're seeing a lot of MFIs raising capital. Even banks are not reluctant lenders anymore. They're buying securitised assets under their PSL (priority sector lending) mandate now," says Vishal Mehta, cofounder of Lok Capital. "Even opportunistic investors, who abandoned MFIs during the AP crisis, are coming back now."

The microfinance industry itself pulled up its socks post AP. According to Mehta, the industry is reaping benefits of enhanced collection efficiency, which is currently upwards of 95%. "A lot of technology is now being used to streamline and make the collection process more efficient. Almost all leading MFIs use digitized data... Manual entries have gone out completely at least at the ground level," he says.

The industry is also making good use of credit bureaus to weed out delinquent borrowers and restrict over-lending to borrowers. As per RBI rules, a borrower should not get loans from more than two MFIs. The industry keeps a tab on this rule ('two-lender rule') by referring to credit bureau records. "MFIs are using our services for all loans disbursed at their end. We maintain records of borrowers who are a part of a cluster or self-help group as well," says Harshala Chandorkar, COO of CIBIL.

Deep industry-level focus around "disciplined lending" is yielding positive results as only 1% of loan instalments are '30-dayspast-due' currently. Over 98% of loans are disbursed within the due date, say industry trackers. "Defaults are sporadic when you compare with NPAs in the banking system," says Paul Thomas, founder - MD of ESAF Microfinance. "Industry NPA has fallen from 0.8% to 0.3% currently. MFIs are very careful while disbursing loans. Some of us even insist on Aadhar cards to complete the KYC process."

MFIs now understand portfolio concentration risk much better than the pre-crisis days. These days MFIs prefer to spread out their loan books across different states to reduce 'state risk' (or portfolio concentration risk). MFIs are moving away from time-tested southern states to newer areas in North and North Eastern states.

"There's an effort to move to untapped markets now like the NorthEast. By moving newer regions, MFIs are diversifying their liabilities," says Ananth. Going ahead, MFIs with in-principle SFB licences would benefit from low-cost funding in the form of deposits, thus improving profitability. An SFB licence would also allow the eight MFIs to offer a range of credit products to individual borrowers. But this is not likely to make NBFC-MFIs redundant.

"Pure MFIs have more linkages with customers at the grassroot level. Banks do not have the bandwidth to match the development focus of an MFI," opines Thomas.

Echoing Thomas, Dilli Raj of SKS says: "We've not received SFB licence, but that will not affect us in a big way. We've easy access to cheap funds as a result of good credit ratings. This market is big enough for NBFC-MFIs to survive."