Sinking MFIs spot a lifebuoy in fee-based services

With no signs of revival on the horizon, microfinance institutions (MFIs) are looking at newer avenues to stay afloat.

Some are evaluating the outsourcing model of banks and  fee-based services for product distribution and bad-loan resolution.

“The market continues to remain lifeless. There are neither recoveries nor fresh advances. But most of the MFIs still carry significant manpower and the knowledge about the rural markets. It is a fact that there has been an attempt to tap other avenues to engage the resources and remain in business. But many of them are still evaluating the regulatory hurdles,” said a senior functionary of an MFI, requesting he be left unnamed.

MFIs are hoping for an improvement in Andhra Pradesh, which accounts for about a third of the country’s microlending market. The market hasn’t been the same since the state government put in place an Act to regulate the activities of MFIs following a spate of suicides allegedly due to their coercive and unfair recovery practices. Indeed, MFIs, which have advanced hundreds of crores to beneficiaries in the state, have not been able to recover the dues since the legislation was promulgated.

“Our monies are stuck. The governments in the state and at the Centre are not keen on bailing out the MFIs at least to the extent of the funds that have remained unrecovered. The non-AP markets are in good health so far, though the size of the markets is not comparable to that in AP. We are looking at other ways of taking the business forward with a combination of microlending in non-AP markets and financial services,” said a spokesman of another MFI, also requesting anonymity.

MFIs are now keen on lending their knowledge in handling the rural financial markets to the banks and other institutions and ride on the wave of the much-hyped financial inclusion programmes.

However, some regulatory clarity is still awaited.

While appreciating the efforts of MFIs in launching financial services, Alok Prasad, CEO of the Microfinance Institutions Network, cautioned that regulatory issues could come in the way of diversification.

“Most of the MFIs are registered as NBFC MFIs. The RBI guidelines for these NBFC MFIs state that about 85% of their balance sheet has to be of microfinance. As long as the guidelines are complied with, there should not be any problem with any MFI stepping into any activity. However, it is a fact that financial services are a very wide area and offer several opportunities. It is a business decision the MFIs have to make,” said Prasad.

Though the MFIs are holding themselves back from being vocal about their plans, sources said the strategy is to ensure there is no loan on their books. “We are all borrowing from the banks and lending it to the beneficiaries in rural areas. Even if there are no recoveries for us, we are obliged to repay the banks. That is the problem area. One model could be to distribute the loans on behalf of banks and be satisfied with the fee-based income,” the source said.