ICICI Bank, the largest lender to microfinance institutions (MFIs), is stepping up its direct term lending to meet the funding needs of MFIs until it resumes the flow of funds under the partnership model of micro lending.
A liquidity crunch had hit several MFIs after ICICI Bank had halted payments in early January following concerns raised by the Reserve Bank of India (RBI) about adherence to customer identification norms and record-keeping under the partnership model.
“ICICI Bank has not resumed the flow of funds under the partnership model. They will meet fund requirements through term loans. For March, they will disburse Rs 100 crore of term loans as this month’s requirements,” said M Udaia Kumar, MD, Share Microfin.
Share Microfin used to get Rs 60-70 crore from ICICI Bank every month under the partnership model. Similarly, another large MFI partner, Spandana, which usually got Rs 30-40 crore a month, has received a Rs 50 crore loan with a 3-year maturity from the bank. The bank has also disbursed Rs 55 crore term loan as reimbursement to the MFI for period over which payments were suspended.
SKS Microfinance, which depended on ICICI Bank for 17 per cent of its funds, has submitted details of its funding needs to the bank to access term loans till the partnership model is suspended. The bank has lent about Rs 2,500 crore to about 200 MFIs. A large part of the bank’s microfinance exposure is through the partnership model where loans given through MFIs are shown in the bank books. This model had been adopted by the bank because the low capital base of MFIs restricts the extent of direct term lending to MFIs for lending to small borrowers.
With funds from ICICI Bank drying up, MFIs had increased their exposure to other banks. HDFC Bank and ING Vysya Bank were giving term loans at 10.5 per cent interest and Citibank at 9.5 per cent, lower than the 12.25 per cent offered by ICICI.
“We raised Rs 90 crore from SIDBI, Rs 70 crore from Indian Overseas Bank as against Rs 20 crore exposure earlier and Rs 70 crore from ING Vysya Bank against Rs 15-20 crore earlier,” said Padmaja Gangireddy, managing director, Spandana. However, according to cash-strapped MFIs, these banks will look for funds at available rates.
MFIs are putting in place management information systems (MIS) so that all transactions undertaken by the MFI get updated at the bank. Since the loan accounts under the partnership model are held on the bank’s books, the central bank wanted these to be updated.
To be able to tap the term loan route till they meet regulatory compliance under the partnership model, MFIs are looking to infuse equity capital over the next few months.
This will help them further leverage their borrowings, which is restricted to 6-10 times of the capital base, depending on the bank. “Most MFIs are looking to mobilise equity. We will be infusing $6 million equity capital in 30 days,” said Udaia Kumar.
Spandana plans to increase its disbursements to Rs 1,150 crore next year from Rs 680 crore now. “For this, we will need to borrow Rs 800 crore and will need equity infusion of Rs 30-40 crore,” said Padmaja.
SKS Microfinance has just completed an equity infusion of Rs 50 crore. It will look at another round of infusion later this year to raise Rs 100 crore.