The Hindu Business Line : ABN Amro to reshuffle microfinance portfolio

ABN Amro Bank plans to reshuffle its existing microfinance portfolio by lowering its exposure to large microfinance institutions (MFIs) and focusing on smaller ones, according to its Vice-President, Head – Microfinance and Sustainable Development, Ms Moumita Sen Sarma.

The bank has tie-ups with about 30 MFIs across the country. “Our strategy will be to diversify and have tie-ups with a number of smaller MFIs so we are trying to put a cap on our large exposures. This will generate greater business though the ticket size will be small,” Ms Sen Sarma told newspersons on the sidelines of a national conference on financial inclusion organised by the Indian Chamber of Commerce here on Tuesday.

The microfinance portfolio of the bank currently stands at about Rs 300 crore, she said and added, “From 2003-2007 our microfinance portfolio has been doubling on an annual basis. However, for the last two years the growth has remained flat as we have been focusing more on redistribution and lending to smaller MFIs.”

The bank, which registered single or low double digit growth in the sector over the last two years, aims to maintain its growth at the current levels, she said.

There has been a lot of debate on the interest rates charged by MFIs and the Reserve Bank of India has also expressed its concerns on the high rates of interest charged by them. Microfinance, Ms Sarma said, was a labour-intensive sector and involved high transaction costs. However, once some of these MFIs are able to achieve economy of scale they might be in a position to pass on the benefits of lower interest rates to their customers, she observed.

The bank has not witnessed any repayment problems in the sector so far.

“Recently we have seen few instances where some MFIs have not been repaying on a timely basis and that is primarily because some of them have grown their portfolio in an indiscriminate manner and not because of the end users of credit,” she observed.

There has been a spurt in the number of MFIs across the country with competition building up. This could lead to multiple lending and over leveraging of customers, she felt. “If too many MFIs operate in the same area then some customers might end up borrowing more than what they can repay,” she said.

However, the formation of credit bureau mooted by the MFIs would ensure that multiple lending does not lead to over leveraged customers, she added.

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