Disseminating knowledge to aid sectoral growth has always been a critical aspect of our work. In the year 2015, we continued to accentuate our efforts to reach out to the readers with best of our research work; evaluation of industry developments and challenges ahead. In this blog we present a collection our top viewed publications:
Transformation of Microfinance Institutions into Small Finance Banks: Will it be a Roller Coaster?
In 2013, Dr. Nachiket Mor committee recommended differential licensing in the form of two categories: i) Payments Bank, and ii) Small Finance Bank (SFB) to further financial inclusion in India. There are various perceived challenges when MFI have to transform from their existing credit led structure to full service small finance bank. Challenges are largely perceived in capital restructuring following RBI guideline to reduce the bank loan exposure to three – four times of their net owned fund and replace it with deposits mobilised from the customer. Challenges become momentous considering arrival of payment bank tapping the same market segment. In this Note, we discuss various challenges that MFIs may face while transforming to small finance banks
Impact of Policies and Regulations on the Micro finance Sector
This report is based on a study conducted under the guidance and support from College of Agricultural Banking (CAB), Reserve Bank of India. The report brings forth perspectives on the impact of regulatory and policy regime on micro finance institutions and its customers. The report incorporates opinions of a range of clients, micro finance institutions and banks who lend to the sector directly and indirectly. The report recommends that the regulator stipulate higher emphasis on the quality of credit assessment based on cash flow analysis rather than adherence to minimum moratorium period criterion. This practice will eventually enhance the skills of micro finance institutions and lay the path for scaling up in future.
Small Finance Banks – Is there an Opportunity for MFIs/NBFCs?
This note explores the possibilities for MFIs and NBFCs as intending to graduate to SFBs. The note identifies two cardinal target segments: (a) low income households and (b) micro and small enterprises, especially in under and unserved regions in India. The low income segments not only have a demand for low-cost financial services but also present a profitable business proposition for financial institutions. The note deliberates on the possibilities and opportunities that Small Finance Banks offer to NBFCs to transform. The note also reflects on the benefits in transformation as SFBs, such as option for product diversification, leveraging low cost structures, brand differentiation, possibility to alter capital structuring, and ability to counter political risk faced by NBFC in the local microfinance sector.
Small Finance Banks – Risks and Challenges of Transformation of MFIs/NBFCs
This note explores the key challenges, and the potential deal breakers for MFIs and NBFCs intending to transform to SFBs. Overall, as highlighted in the first note of the series, MFIs/NBFCs are best fit to transform into SFBs given the lucrative business proposition and the potential opportunity. However, the institutions have to be cognisant of the risks of transformation. Transformation to SFB entails changes in the business model, organisational structure, capital structure, product suite, IT/MIS, and others. These changes will lead to risk and challenges for the institution and it is important that the institutions must carefully think if transformation would be a sound strategic move for them. MFIs/NBFCs should conduct a thorough review of their business plans, product suite and their competence to transform and manage banking business before embarking on the journey of the transformation.
Assessing the most ambitious public financial inclusion drive in history – An early dip-stick assessment of Bank Mitr’s under Pradhan Mantri Jan Dhan Yojana
The Department of Financial Services (DFS) in the Ministry of Finance, MicroSave, and the Bill & Melinda Gates Foundation designed a survey to understand the coverage and quality of Bank Mitrs across a sample of SSAs; and to understand customers’ experience with PMJDY. The study was conducted in November and December 2014 across 41 districts in 9 states. A total of 2,039 BM locations and 8,789 beneficiaries were surveyed. BMs were assessed on dimensions such as availability based on the physical address and contact details provided to DFS by banks, transaction-readiness and branding. The customers were asked questions about their experience on aspects such as first bank account under PMJDY, receipt of RuPaycard and availability of Aadhaar and its linkage in PMJDY account. 69% of Bank Mitrs were physically present at the stated location, 48% were transaction ready and 11% were untraceable. 86% of PMJDY account holders reported that this was their first bank account and 18 % have received Rupay card. This publication discusses in details the outcome of the survey.