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Microfinance India Summit 2010
Over the last seven years, the Microfinance India Summit, organized by ACCESS Development Services, has established itself as an international conference dedicated to Indian microfinance. It has become the single most important platform for sharing the Indian experience, unique as it is, with a global audience. At the same time, it also provides an avenue to learn about international trends and best practices for adaptation by the Indian community of practitioners. Policy makers, practitioners, promoters, academics, researchers and thought leaders share their experiences on various panels, and about 1000 delegates from both within and outside the country participate in the Summit. It bridges the unnecessary hiatus between models and methodologies and helps to build consensus on the critical challenges and issues. In the past, the Summit themes have helped in focusing on key issues including "Inclusion, Innovation and Impact" (2005), "Urban Microfinance" (2006), "Formal Financial Institutions - the challenges of depth and breadth" (2007), "The Poor First" (2008) and "Doing good and doing well- The need for balance" (2009) The microfinance India Summit 2010 was held between November 15-16, 2010 at Hotel Ashok, New Delhi. The over-arching theme for the Summit was "Mission of Microfinance - Need to Reflect and Reaffirm". Resonating the current situation in the Indian microfinance sector, the Summit sessions focused on current trends and issues relating to sustainability, transparency, social performance, commercialization of the sector, client protection, among others. The highlights of the Summit are encapsulated in the daily newsletters released during the Summit. The full report on the Summit 2010 will be uploaded shortly. Day 3 (November 17, 2010) was organized as sponsored Thematic Round Tables held at the India Habitat Center, New Delhi. The Round Tables have been designed to enable interested organizations / institutions to allow for more insightful discussions on a current issue / theme, present finding of recent research, share innovative ideas or hold consultative workshops in a structured manner with a selected small audience.

23 Nov, 2010, 01.33PM IST, Gayatri Nayak,ET Bureau Microfinance in India is like subprime lending: Y V Reddy
MUMBAI: Yaga Venugopal Reddy , former Reserve Bank of India governor credited with saving the nation¶s financial system from the 2008 meltdown, has said what many finance experts believed, but did not have the courage to admit publicly: microfinance is India¶s subprime. ³Ultimately, it¶s something like subprime lending,´ Mr Reddy told ET in an interview ahead of his book release. ³The same incentives are operating here... it was securitisation and derivatives that operated in the US. Here it is the priority sector lending by banks.´ Subprime lending refers to loans extended to people with poor repaying ability that ultimately led to defaults. The Rs 25,000-crore microfinance industry is facing tumultuous times ever since the biggest, SKS Microfinance , created a controversy two months ago by sacking chief executive Suresh Gurumani. There was a confluence of woes for the sector when the Andhra Pradesh government came up with legislation curbing their operations. Banks pulled back on lending as some of the institutions were behaving more like moneylenders and in some cases drove borrowers to suicide. Indian banks such as SBI , ICICI Bank and Axis Bank are estimated to have lent Rs 16,000 crore to micro lenders. ICICI¶s lending is at Rs 2,000 crore, SBI¶s at more than Rs 1,000 crore and Sidbi¶s at Rs 4,000 crore, according to data from rating company Care. The financial magnitude may not be the same with the Indian microfinance industry being tiny compared with the subprime lending crisis that led to more than a trillion dollars of losses and sank many venerable institutions. But there are similarities such as opaque practices, high salaries and commissions inducing unethical business, and leverage.

But that did not mean that its role in financial inclusion could be discarded. clamped down last month on industry collection practices that were reportedly blamed for a spate of suicides by borrowers. says Reddy. chairman of BASIX.´ said Mr Reddy. ³If it is profit and if there is lending. ³Yes.´ These institutions are no more the not-for-profit ones as envisioned by Nobel Laureate Mohammed Yunus. Andhra Pradesh currently accounts for 27 per cent of the company's total portfolio. Last month. the company had reduced interest rates in AP to 24. ³Also. 2010.434 crore. Critics have also complained that microlenders had failed to pass on the benefits of profits to borrowers in the form of lower interest rates. sending its shares sharply lower. whereas here the MFI is actually borrowing money from depositors and lending the money.´ said Mr Reddy. the resultant reduction in collections in AP (Andhra Pradesh) is likely to have a material impact on the company's revenues. I agree with Mr Reddy when he says a lot of perverse incentives got aligned. ³The idea that MFIs should be treated like banks but given soft regulations is dangerous. Microfinance lenders in India make loans that average roughly $150. So we are shocked at the fact that the stock has dropped so much. Bangladesh-born Yunus had seen micro lending as a vehicle to lift people out of poverty rather than enhance returns of wealthy investors in private equity funds. At the end of September. "As said in our earlier notification." it said in a statement to the stock exchanges. The company said it has credit lines totaling Rs 2. if this is not redressed satisfactorily. aggressively.´ Many admit to the fact that the industry has gone astray with the lure of superlative returns as private equity investors such as Sequoia Capital smelt an opportunity. the resource is leveraged.55 per cent from over 26 per cent after the state government 15 promulgated an ordinance to control MFIs on October. whereas most such lenders in India typically collect on a weekly basis. if you look at it. ³Here perverse incentives got aligned like in the US and in two years the sector went from helping the poor to preying on the poor. the industry's largest market. a micro lender. he is a moneylender. India's once-thriving microfinance sector has been reeling since Andhra Pradesh. "Collections are low (in Andhra Pradesh) but bankers are still lending us funds and things are improving. who was criticised before the credit crisis for his conservative approach to policymaking. He was speaking after the company's shares tumbled by about 20 percent on Thursday morning after the company issued a statement saying that collections in Andhra Pradesh were lower than normal since the ordinance took effect. So essentially. Takle said collections in other states were normal.The current practices may create systemic problems too.500 crore ($549 . profitability and asset quality of the AP portfolio. The new Andhra Pradesh rules require microfinance companies to collect only once a month. but a leveraged moneylender. then it¶s just moneylending. it¶s not just moneylending business. but did not specify a timeframe. ³We had a somewhat similar experience with urban co-operative banks. and member communication.03AM IST. charging interest that can top 30 percent." the SKS statement said. The moneylender normally lends out his own money. and head of Microfinance Institutions Network. so regulations are essential. profits and asset quality. 11. unlike moneylenders who operate with their own money.AGENCIES SKS Microfinance shares fall 20% after earnings warning MUMBAI: The crackdown by Andhra Pradesh on business practices by lenders to the poor threatens to squeeze revenue. "The collections are lower than normal on account of transition from weekly to monthly collection cycle and the related change in MIS (management information systems). the country's only listed microfinance firm said.´ said Vijay Mahajan. passbook. the company had a gross loan portfolio of Rs 5." SKS Microfinance spokesman Atul Takle told Reuters. SKS had said it would eventually reduce interest rates across the country to 24 per cent.´ 18 Nov.

about 35 percent below their Rs 985 IPO price. Please respect FT.com/cms/s/0/be02de00-27d4-11e0-a327-00144feab49a. 28 peak. They charge interest rates as high as 34 per cent. MFIs usually lend money to borrowers through women's groups in remote areas. EDITOR¶S CHOICE The professional family business .http://www.ft.com to buy additional rights or use this link to reference the article . SKS.Jan-19 RBI to decide the shape of Indian banking . The ordinance now makes it mandatory for all MFIs to register with the district Registering Authority. mostly due to the cost associated with administration of loans in remote areas.support@ft. India's finance minister last month said he expected the industry to adopt a code of conduct on interest rates and recovery practices. Other lenders had also been looking to go public.Jan-24 India pushes for national microfinance rules . India¶s largest microcredit provider. & redistribute limited extracts. Fortunes for India's microfinance industry have turned dramatically since SKS.Jan-05 India eyes drug industry ownership curbs .Jan-03 India must free its exchanges . and 57 percent below their Sept. said it had recorded a 38 per cent fall in net profit from October to December after a significant disruption to its loan collection in the southern state of Andhra Pradesh. The AP ordinance was issued after a spate of suicides in the state.7m in spite of an increase in income from $59m a year ago to $84m.html#ixzz1C2JfcBM4 SKS Microfinance hit by profit slump By Amy Kazmin in New Delhi Published: January 25 2011 04:20 | Last updated: January 25 2011 04:20 SKS Microfinance. which extends small loans to impoverished urban and rural women. raised $358 million in a heavily subscribed initial public offering in August.048 crore in October.million).Jan-05 Fraud probe at Citibank branch in India . and seven banks have disbursed Rs 292 crore to it since the state ordinance took effect. Email ftsales. which many alleged was due to high interest rates and the coercive recovery methods adopted by microfinance companies.Dec-29 . copy content for personal use.com's ts&cs and copyright policy which allow you to: share links. said its profit during the three-month period ending in December fell to $7. SKS said it disbursed Rs 1. which is backed by George Soros . Shares in SKS traded on Thursday morning at Rs 642.

However.5bn. Of those provisions. which has helped facilitate their rapid growth. India¶s for-profit microfinance companies had promoted themselves as providing far more affordable loans to the poor than usurious traditional rural and urban money lenders. 2010 . The performance of SKS. The Andhra Pradesh rules are being challenged in court by India¶s Microfinance Institutions Network. Among other measures. where authorities passed an emergency order in October making it extremely difficult for micro-lenders to collect on outstanding debts after a spate of suicides by over-indebted borrowers. Please don't cut articles from FT.com/cms/s/0/be02de00-27d4-11e0-a327-00144feab49a. India¶s only listed micro-lender. in the last three months highlights the magnitude of the disruption in Andhra Pradesh ± which once accounted for about 30 per cent of India¶s total outstanding micro-loan portfolio ± on India¶s once-flourishing and fast-growing microcredit industry.ft. Shares in SKS. have fallen nearly 30 per cent since the Andhra Pradesh crackdown in October. SKS said it would continue to assess the adequacy of the provision on the Andhra Pradesh portfolio based on the ³continued evolving environment´ in the state and the potential outcome of the lawsuit challenging the state¶s microfinance law. In a statement. Indian microlenders received some comfort last week when a high-level committee of India¶s central bank recommended a new national regulatory framework for microlenders.com and redistribute by email or post to the web http://www. while preventing the exploitation of impoverished borrowers. Copyright The Financial Times Limited 2011. the RBI committee recommended that microlenders continue to be deemed a ³priority sector´ for privileged access to Indian commercial bank lending. and eventually triggered an intense regulatory backlash. In spite of difficulties in the last quarter. which rose another 40 per cent after its August IPO. on a 69 per cent increase in income. SKS said its net profit for the nine-month period ending in December rose 63 per cent over last year. which had raised $358m last August in an initial public offering that valued it at $1. which represents the country¶s 44 for-profit micro-lenders.html#axzz1C2JF6ST5 SKS Microfinance tumbles on cash crunch news India Infoline News Service / 17:54 . said it had set aside Rs1bn ($22m) as provisions for bad loans during the quarter.SKS. which will likely supersede the Andhra Pradesh controls. Nov 16. the company said Rs580m was in connection with its portfolio in Andhra Pradesh. But the SKS IPO ± and the huge salaries being paid to some microfinance executives ± drew public attention to the hefty profits being made in the industry ostensibly dedicated to poverty alleviation. You may share using our article tools. Analysts say the Reserve Bank of India¶s proposal ± which would include a cap of 24 per cent on interest rates ± provide a solid framework that would both allow the industry to expand.

which accounts for about 27% of SKS¶s loans. The stock touched an intra day high of Rs.7 estimated earlier. ³The ordinance and its implementation will have material impact on the company¶s operations´ in the state. due to reduced lending rates. say analysts at Citigroup. 899 and an intra day low of Rs. The loan growth is seen at 30-40 per cent over the next two-three quarters. And. and plans to lower it to 24% in that state and in other markets. The shares of SKS Microfinance closed at Rs. the only listed MFI in India.40 or 11. Brokerages expect SKS to show earnings per share (EPS) of Rs 39 for 2010-11. Earlier on Oct 22. it said last week. 9. higher funding costs. said that the company must comply with new government rules that say lenders can¶t charge interest exceeding the principal on loans and mustn¶t coerce borrowers to repay debt. 101 or 11. Amidst growing uncertainty on the regulations governing the operations of microfinance institutions (MFIs). 0:30 IST Regulatory action has damped its price and investors should refrain from getting in till sector rules are clearer. have taken a beating of 50 per cent since October. 738.25% over the last close. said in an Oct.25. Field operations including holding village meetings have been disrupted in Andhra Pradesh following the high court ordinance due to lack of political and legal support. down Rs. it said. The stock touched an intra day high of Rs.42 lakh shares.´ Vijay Mahajan was quoted as saying.The shares of SKS Microfinance of are currently trading at Rs. Total Traded Quantity at the counter stood at 12. 9 statement. 899 and an intra day low of Rs. experts believe the worst is not over for the stock. 2010. feel analysts. SKS Microfinance dropped to the lowest since its August trading debut on reports that microfinance companies are facing liquidity crunch in the wake of the increased scrutiny of their lending practices and are therby seeking emergency funding. the micro-lenders are seeking Rs. While the new Andhra microfinance law continues to impact the business of SKS significantly. 10bn in emergency funding from banks.55% in Andhra Pradesh. SKS has also reduced interest rates to 24. due to greater . shares of SKS Microfinance. According to reports. The company is seeking changes to the more ³onerous aspects´ of the ordinance. 738. versus Rs 49. SKS Microfinance sees mounting macro pressure Sheetal Agarwal / Mumbai December 30. based in Hyderabad. SKS. a high court in Andhra Pradesh. SKS said on Nov. lower loan growth and increasing non-performing loans. 802. that investors should consider exiting it. to set up an emergency ³liquidity fund.55% over the last close. 104. SKS said in its Nov. The microfinance industry is now in talks with the Small Industries Development Bank of India and ICICI Bank Ltd. 799. 23 statement its interest rates and lending practices already meet the state¶s guidelines. down Rs.

as multiple MFIs usually lend to individual borrowers. passed by the State Assembly recently. This will further dent loan growth.20 209.20 5. This. a geographically diverse loan portfolio.downside risks. 2010. places restrictions on recovery practices and limits collections of debt to once-a-month from once-a-week earlier.10 ABV: adjusted book value FY10 670.50 596. Loan growth has moderated due to a freeze on fresh loans by MFIs in AP and slowing disbursements in other states. SLOWING DOWN In Rs crore Total Income Net interest income Net interest margin (%) Net profit P/ABV (x) E: Estimated FY09 359 312 15. since borrowers earn daily or weekly income. the provisions would adversely impact MFI operations. However. SKS recently reduced its effective lending rate by two per cent. However. .30 174. which it can capitalise once the current uncertainty dies. based on the recommendations of the Y H Malegam committee on the sector. coupled with higher funding costs (due to banks reducing exposure to MFIs). Loan spreads can fall by at least two to three per cent (from 15 per cent). will squeeze the net interest margin of the company. Ahead Quick resolution of this situation could curb losses.80 4. If implemented (the parties concerned have challenged it in the high court). believe analysts. clarity is expected only after RBI creates a regulatory framework for MFIs by March 2011. Also.40 17.2x (September) gives SKS an edge over its peers. a monthly collection cycle will impact the repayment efficiency.80 Source: Citigroup report Impact The Andhra Pradesh Microfinance Institutions Bill.70 19.40 80.90 FY11E 967 865. Collections for MFIs in AP have dropped to 15-20 per cent from the erstwhile levels of 99 per cent. hitting asset quality. The Act intends to limit an individual to loans from one self-help group (SHG) and one MFI only at a time. Clarity on the regulatory framework will provide cushion to the stock's southward trip and till such time.60 2. investors should refrain from making fresh investments despite the fall. with Andhra Pradesh (AP) contributing about 28 per cent of its loan book and lower leverage (total assets/equity) of 3.

50 a day. is the world¶s largest market for such loans. managing director and chairman of SMC Wealth Management Services Ltd. gained prominence globally when Muhammad Yunus won the Nobel Peace Prize in 2006 for his role in founding Bangladesh¶s Grameen Bank.Further. an industry group said. Experts believe the MFI business will attain normalcy only by the April-June 2011 quarter. ³There have been a lot of negative views about microfinance companies in the past few weeks´ because of Andhra Pradesh¶s tightened norms. shares fell by a record. head of the Microfinance Institutions Network group.business-standard. where more than 600 million people live on less than $1. The lenders are seeking 10 billion rupees ($221 million) to set up an emergency ³liquidity fund. their biggest market. Despite the current turmoil. SKS Microfinance Ltd.´ Microfinance. Loan recovery in Andhra Pradesh state. 2010 4:33 PM GMT+0530 India¶s microfinance companies are seeking emergency funding from banks after defaults jumped amid a clampdown on lending practices. ³As long as microfinance companies have no strong regulation. due to the strong underlying business economics (and demand). which typically offer loans starting from $100 to the poorest. Their distribution reach is very large and this is a major positive. http://www.Nov 16. the central government is looking at introducing a Bill over the next five months and this is likely to override the Andhra one.´ Vijay Mahajan.K. said by telephone today. India. in New Delhi. SKS Shares Plummet By Ruth David and Siddharth Philip . MFIs have a strong presence in India. SKS. Aggarwal. MFIs need to modify business models towards asset-light lending and broadening the product base. he said.com/india/news/sks-microfinance-sees-mounting-macro-pressure/420012/ Microfinance Companies in India Seek Emergency Funding. Micro-lenders. which focuses on loans in poor areas largely shut out from traditional banking services. said in an interview in New Delhi today. the lender backed by George Soros. confidence in them will remain low. have come under pressure after the state capped interest rates they can charge and barred them from coercing borrowers to repay debt to prevent suicides. Debt Pileup . to continue being classified as priority sector lending. as this aligns well with the government's aim of financial inclusion. fell 11 percent to the lowest level in Mumbai trading since its August trading debut. D. has come to a standstill.

making it hard for lenders to check whether clients have multiple loans. SKS said in its Nov. India doesn¶t have a nationwide system for tracking borrowers¶ credit histories. 9 statement to the exchange. and plans to lower it to 24 percent in that state and in other markets.55 percent in Andhra Pradesh. field operations including holding village meetings have been disrupted in Andhra Pradesh following the ordinance. she said. which accounts for about 27 percent of SKS¶s loans.´ Kochhar said.´ The microfinance companies serve the nation¶s poorest. The microfinance industry is now in talks with the Small Industries Development Bank of India and ICICI Bank Ltd. the lenders shouldn¶t be constrained for funding. based in the state¶s capital of Hyderabad.4 percent advance in the nation¶s benchmark Sensitive Index. ³It will particularly help smaller´ lenders. have dropped 19 percent since its trading debut in August. Stock Performance Shares of SKS. it said then. However. in mid-October passed an order that micro-lenders can¶t charge interest exceeding the principal on loans and can¶t use coercive measures to force borrowers to repay debt. Andhra Pradesh. 23 statement its interest rates and lending practices already meet those guidelines. ICICI Chief Executive Officer Chanda Kochhar said in an interview in New Delhi today. SKS has also reduced interest rates to 24.makers in recent months for offering loans without adequate documentation and allowing borrowers to pileup debt.Yet the nation¶s micro-lenders have been criticized by law. Still. SKS. The company is seeking changes to the more ³onerous aspects´ of the new rules. ³The ordinance and its implementation will have material impact on the company¶s operations´ in the state. the lender said on Nov. While the industry needs to review standards such as the amount of loans provided to each customer. 9. we can¶t pull the plug. ³Banks are assessing the situation. he said. Spokesman Atul Takle declined to comment today. Mahajan said today. to set the emergency fund. ³They will get saved because they don¶t need big medicine. compared with a 9. which were sold for 985 rupees apiece in its initial public offering. the momentary experience of one state is not reflective of how the whole the situation is. said in an Oct.´ . ³As responsible banks. it said last week.

4 percent stake in SKS after the IPO.php . data compiled by Bloomberg show.com/know_sks.Soros¶s Quantum (M) Ltd. hedge fund owns a 0.sksindia. http://www.

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