Reliance Retail and Bharti, which has joined hands with Wal-Mart, could storm the micro-credit space as they look to establish rural supply chain linkages to service their mega retail forays.
According to sources, Reliance Retail is likely to move the RBI seeking permission to set up an NBFC arm that will operate as a microfinance institution (MFI). It may also look at partnering existing MFIs as part of its ambitious supply chain with rural and semi-urban markets for which the company is said to have earmarked Rs 8,000-10,000 crore.
The move could significantly pep up the currently under-serviced microfinance sector. Micro-lending to the economically active poor, both urban and rural, is pegged at around Rs 7,000 crore, as reflected in bank outstandings. As against this, back-of-the-envelope calculations put the demand at around Rs 2 lakh crore.
Sources added that Reliance Retail was also exploring the possibilities of leveraging the MFIs for peddling its mass consumption goods into the rural belts, thereby making it a two-way opportunity. When contacted, a Reliance spokesperson declined to comment.
While Reliance has already made its first moves in tapping the potential and is said to be in early-stage talks with some leading MFIs based in Andhra Pradesh, rival Bharti has also shown interest in exploring the MFI route for supporting the retail supply chain, contract farming operations and dairy sourcing.
Sources said Indian retail biggies including Reliance and Bharti are headed to the microfinance summit hosted by the Women's World Banking (WWB) in Mexico next month. WWB with its knowledge capital and global network experience is poised to unveil a slew of new partnerships in bolstering the base of microfinance entrepreneurs in the country.
Besides, the senior Ambani's retail juggernaut has also started inducting financial services professionals, another indication of its microfinance interest. Sources said Mukesh Ambani, in recent times, has repeatedly spoken about putting money in the hands of the farmers and working alongside in improving yields.
India's microfinance movement, including the government-sponsored self-help group-bank linkage programme and MFIs backed by new generation private banks, together service barely 10% of the 80 million households who have appetite for credit. Of this, the southern states account for 70%, with Andhra Pradesh holding 60% of the southern market. Incidentally, the three major MFIs in AP-SKS, Share Microfin and Spandana—together reach about 14 lakh households. Of these, more than 60% would be in agriculture, animal husbandry or related fields.
Besides working with the farming community on improving yields, the retailer is also likely to rely on MFIs to establish and operate the supply chain network, which could subsequently develop into a trading platform for excess commodities.
But it is not just Reliance and Bharti that are warming up to microfinance lending. Even mid-sized regional retail players like Heritage Foods, Trinethra (recently acquired by AVB), Subhiksha and several other agri-business consultancies are hot on the trail, anticipating the big Indian retail boom.
Acknowledging that retail players have been in touch with them, some MFIs say that it is early days yet, but inevitable.