Nabard is planning to finance micro finance institutions (MFIs) to cater to the capital requirement of the last mile lenders.
The development finance institute earlier had a Rs 200-crore fund called Microfinance Development and Equity fund with which it has funded several large microfinance institutions and also small finance banks. But the contribution was more in the nature of grant which Nabard, unlike equity investors, never encashed.
Nabard is now considering if the institution can re-enter the equity funding space keeping in mind the capital requirement of MFIs emerging from the pandemic and the growth prospects of the sector. With several NBFC MFIs graduating to SFBs, there is also room for new players to emerge with capital requirement needs.
“There is informal discussion with people within the organisation whether Nabard can re-enter this segment. In the earlier instance, Nabard had given money, but never encashed it. At the same time, competing institutions made tons of money by converting grants into equity,” Nabard chairman G.R. Chintala said at a seminar organised by MFI industry body Sa-Dhan.
“This time when we enter we will put money as equity and also provide continuous oversight so that these institutions can grow and pay dividends, not just to the investors alone but to the society at large,” he added.
MFIs had collectively raised fresh equity to the tune of Rs 1690 crore in 2019-20 increasing the equity base to Rs 4489 crore for the year against Rs 3050 crore in 2018-19. According to the Bharat Microfinance Report 2020 released by Sa-Dhan, top 10 NBFC MFIs cumulatively raised 91 per cent of the fresh equity during the year.
Nabard chairman also called for more vigilance among the MFI industry stakeholders including self-regulatory organisations for the industry in light of the recently unearthed fraud involving an Odisha based microlender. Rating agency Brickwork Ratings downgraded the NCDs and bank loan facilities of Sambandh Finserve Private Limited in October after internal frauds were unearthed at the end of September 2020.
“MFIs should refrain from doing such kind of ghost financing and build books and get money out of the banking system. SROs have a bigger role to play. In case there is a suspect, it should be immediately flagged off to all the lenders because ultimately the lenders have to take a hit,” Chintala said.
He added that there should be a mechanism for the lenders to track how the MFIs are managing risk at their end.
