Sidbi, Nabard in race to fund top MFIS

Both Small Industries Development Bank of India (Sidbi) and National Bank for Agriculture & Rural Development (Nabard) are chasing top microfinance institutions (MFIS) for financing, as they have been given ~40,000 crore by the Reserve Bank of India (RBI) for liquidity support.

According to informal estimates, both organisations are looking to give between ~7,0008,000 crore cumulatively in funding to MFIS. In fact, the two institutions are competing to tap top MFIS, according to a senior executive from the MFI industry.

On Wednesday, Sidbi extended the repayment period of loans to MFIS to one year from the 90-day period earlier under the special scheme. This came after Nabard said it would provide an 18-month term loan to MFIS, and a special refinance scheme of one year as directed by RBI. A few days back, Sidbi reached out to MFIN (Microfinance Institutions Network), to seek a list of MFIS in need of funds.

On Wednesday, Nabard held a meeting of MFIS and indicated that it could provide term loans of up to 24 months, and would top up the RBI pool with its own funds to support MFIS, said sources.

Nabard also suggested that big MFIS that avail the funds could on-lend to smaller ones. The fund disbursement is likely to happen by mid-m ay, and the rate s of interest offered by the institutions could be in the range of 7-8 per cent, depending upon credit ratings, said sources. Normally, such financing is done at an interest rate of around 11-12 per cent.

“Both Sidbi and Nabard and complementing each other to support MFIS, which is a very encouraging trend,” said Harsh

Srivastava, chief executive officer of MFIN.

However, the major issue with the MFI sector is the lack of liquidity support for smaller MFIS, who do not have investment-grade rating.

“For big MFIS, funding has not been a problem. Both Sidbi and Nabard are supporting investment grade and big MFIS,” said P Satish, executive director of SaDhan. While Nabard’s refinance is available to MFIS with asset size of ~500 crore or more, for Sidbi the criteria is investment-grade rating.

RBI has allocated ~50,000 crore to Nabard, Sidbi and National Housing Bank (NHB). Of this, ~25,000 crore has been earmarked for Nabard to refinance regional rural banks (RRBS), cooperative banks, and MFIS; ~15,000 crore is for Sidbi for on-lending/refinancing; and ~10,000 crore for NHB for supporting housing finance companies (HFCS).

According to Satish, about 35-45 NBFCS would be eligible for the funding from Nabard and Sidbi. More than 100 MFIS would be left out.

Both bodies are looking to provide ~7,000-8,000 cr cumulatively in funding to MFIS, say sources