Microfinance - SIDBI’s Perspective
Lending & Investment
P. K. Saha
Chief General Manager
Nurturing of MFIs
1994:
 SIDBI launched its microfinance programme on pilot basis to
 tap the huge potential of unmet demand for credit in
unorganized and informal sector
 serve its mandate for promoting, financing and developing
the micro, small and medium enterprises in India
1999:
 Upscaling and re-orientation of microfinance programme of
SIDBI.
 SIDBI Foundation for Micro Credit (SFMC), a specialized deptt.
set up to create a national network of strong, viable and
sustainable Micro Finance Institutions (MFIs) from the informal
and formal financial sector.
Strategy of SIDBI
 Utilise existing grassroot institutions for channelising credit
 Institution building of MFIs
 Build access and capacity at grassroot level, instead of focusing
on subsidies
 Provide customized financial assistance and capacity building
support
 Encourage investment in microfinance by formal financial sector
Strategy of SIDBI
 Shift towards commercial sources of microfinance
 Nurture and equip financial intermediaries to deliver quality
micro finance services
 Scientific appraisal, instead of collateral – based lending
 Build favourable policy and regulatory framework to facilitate
orderly growth
Features of MCS: Core product of SFMC
 Focus on poor, mainly women
 Customised need based package of loan, grant and equity to
partner MFIs
 Capacity building of beneficiaries, MFIs and sector/ training
institutions
 Capacity Assessment Rating (CAR) and Capacity Building Need
Assessment (CBNA) prior to sanction
 Market driven flexible approach for credit delivery with focus on
financial sustainability
Products of SIDBI
Products
Direct loan support:
Term loan to
partner MFIs
Quasi-equity
type support:
Transformation
Loan product
Credit plus support:
Capacity
building
support
Growth Phase
 Modified products to match up the growing needs of the sector.
 Corpus Support for Transformation (CST), a new product
developed specifically for small grassroot NGOs operating in
underserved areas.
 Risk Fund for wholesaler MFIs to encourage operations in
underserved regions.
 Loan Syndication
 Microenterprise promotion
 Portfolio Risk Fund
Growth Phase
 Equity Funding - SIDBI Growth Fund for MFIs (Corpus of Rs.50
crore) set up to
 equity investment in well-managed corporate MFIs, in the
form of quasi-equity / mezzanine finance in medium rung
non-corporate / start-up institutions

resource support to Private Equity (PE) funds for equity
investments in Indian MFIs
 Corpus increased to Rs. 500 crore
 Specialized Microfinance branches at 7 locations
Pre-requisites for SIDBI while lending
Acceptable
rating grade
Satisfactory
credit
opinion
Adequate
capitalization
Compliance
with AML,
KYC,
defaulter’s
list
Quality of
Audited
financials
Good portfolio
quality
Number
of lenders
Good track
record of
promoters
Professional
management
Pre-requisites for SIDBI while
investing in equity
Pre-requisites for lending
Legal form
Quality of
other investors
Realistic
projected
financials
Exit
options
Good
growth
potential
SIDBI
stake < 20 %
Profitability
Attractiveness of
valuation
Concerns


Transparent and fair practices –

Credit discipline

Fair practices at field level

Competition / multiple financing / client overlap

Information sharing
Governance and Ownership Issues

Boards not diversified

Ownership (?) in case of MFIs having PE investors
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Concerns


Transaction costs –
 Cost-effective delivery
 Leveraging technology
 Capital -intensive – grant funds required in initial stages
Regulation
 Conducive policy environment needed given the present size
and scale
 MF Bill yet to be enacted
 Self-regulation
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Concerns

Capital Adequacy
 Low level, for the sector at large
 Improvement in case of larger MFIs
 Mid-scale MFIs still capital deficient
 Need to have quasi-equity funding

Regional / balanced growth
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Thank You