There seems to be more and more indication that the decrease in bank lending is affecting microfinance in India, and around the world. For instance, a recent article in the Financial Chronicle, uses interviews with microfinance practitioners to highlight the increase in borrowing rates from banks in India.
Arjun Muralidharan, CEO of Grama Vidiyal Microfinance, had this to say:
“MFIs borrowing costs from banks has increased to 13.5-14 per cent from 12 per cent earlier. Earlier, we were facing difficulty in securing funds due to tight liquidity conditions and, therefore, had to cut back on our disbursement targets. While the recent RBI measures have enhanced liquidity and access to funds has become easier, rates are still on the higher side. The rates may come down in the fourth quarter, when banks would need to meet their priority sector disbursement targets,”
Anal Jain, managing director of MVA Ventures, which has a US$50 million fund to invest in Indian MFIs, said:
“MFIs are facing such a volatile interest rate conditions for the first time. Earlier, the micro finance institutions, instead of increasing rates charged from the customers, raised the processing fees to 2 per cent from 1 per cent. So, even if the banks cut rates at which they lend to MFIs, it would be difficult for the latter to pass on the benefit to their customers.”
To take a step back from India, this MicroCapital article details how earlier this week, the International Development Bank (IDB) provided US$20 million to an emergency fund for Latin American and Caribbean microfinance institutions. According to a press release on the IDB website, the funding is “to help Latin American and Caribbean microfinance institutions weather economic crises and natural disasters”.
These stories do not prove that microfinance institutions across many geographic regions are finding it harder to borrow and grow their operations, but the stories keep adding up (including this one about how the credit crunch affects customers from summer of 2008), and personally I am becoming convinced.
Which begs the question, would higher interest rates for customers deter them from taking loans from microfinance institutions in India? Also, do readers have examples which support, or go against, my above point that credit rates for borrowing microfinance institutions are on the rise?
3 comments:
Actually I feel that it is not the liqudity crunch that is hitting microlending in India -- risk-free interest rates in the system are at an all time low (10 year yields are 4.24%, down from 9.55% in July 2008) and the system is flush with money (I think SBI has seen a 50% increase in deposits). It is the anxiety about risk taking and the reluctance of micro lenders to sell assets but instead to want to borrow on their balance sheets. The IFMR Trust's Gurantee Company (ITGC) is hoping to using ratings supported by some very tight underwriting guidelines to raise money for microfinance.
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