India: Microfinance Firms to Set up Credit Bureau

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Aug 2009
Hyderabad, India, August, 23 2009 - Microfinance companies are planning to set up a credit bureau to facilitate smooth disbursal of loan to the needy sections of the society. Hyderabad-based SKS Microfinance, the largest player in the segment in terms of assets, is playing a key role in this regard.

“There is no credit bureau that supports microfinance lenders. So we are in the process of getting one. We are talking to the Credit Information Bureau (India) and a couple of other people. Hopefully by this month end, an announcement will be made,” Suresh Gurumani, chief executive officer of SKS Microfinance, told Financial Chronicle.

Once the bureau comes into existence, it would be entrusted with identifying how much a loan seeker has borrowed and how much more he is eligible for.

Adoption of the new system may not be without hiccups, though. ‘Firstly, it’s next to impossible to assign any kind of unique identification for people in rural areas,” Gurumani says. “Plus many microfinance companies in India have still not adopted computerisation, making matters worse.”

SKS has been one of the most successful companies in the microfinance sector domestically. Set up on the Grameen Bank model of Bangladesh’s Nobel laureate Mohammad Yunus, it had a total outstanding loan amount of almost $500 million by the end of March. The company was ranked as number one microfinance institute (MFI) in India and second worldwide by the Microfinance Information Exchange Ma-rket, a major business information provider for the microfinance industry.

The domestic market for microfinance services is pegged at 150 million households. Even though MFIs have mushroomed all over the country in the past few years, Gurumani believes that all of them put together cater to only 20 million of the estimated market size.

“The market is really huge and everybody is getting into it. But in this sector, if you grow faster, you will fall faster because if the poor defaults, there is nothing one could do. So you have to be extremely careful while lending to them,” he says.

SKS is looking beyond banks, which have been a traditional funding source for MFIs. The company has raised money through credit-rated capital market products such as non-convertible debentures and commercial paper.

Gurumani says that the management is not averse to tapping the equity markets for funds, but hasn’t decided on a timeframe for launching an initial public offering.

 

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