MICROCAPITAL STORY: Indian Microfinance Institutions Madura Microfinance and Grama Vidiyal Report Good Credit Growth in Fiscal Year 2009

Despite the credit crunch Indian MFIs Grama Vidiyal, and Madura Microfinance reported strong credit growth as Indian banks eased credit in order to meet their priority sector targets. Grama Vidiyal’s disbursements grew 81.2 percent to USD 74.6 million from USD 41.2 million in the prior year. Madura’s disbursements grew 33 percent to USD 25.3 million from USD 18.9 million in the previous year.

As reported in a recent MicroCapital story, Indian microfinance institutions’ profitability has been pressured by the decline in available funding, rising interest rates, and the recent tightening of government regulations. “We faced a credit crunch during the start of the second half of fiscal 2009 because banks tightened their lending. But towards the end of the year, banks eased credit in order to meet their priority sector targets and now things are normal,” Arjun Muralidharan, chief executive officer, Grama Vidiyal, said.

Government regulations require commercial banks to maintain a minimum of 18 percent of their overall loan portfolio in agricultural loans. Consequently, as further described in a recent MicroCapital news wire, agricultural loan sales by Indian MFIs to commercial banks have been very popular. Indian banks typically buy such loans towards the end of their fiscal year in order to meet lending targets.

Bandhan, another Indian microfinance institution, recently sold Rs 180 crore (USD 35.4 million) worth of farm loans to several Indian commercial banks including Punjab National Bank (PNB), IndusInd Bank, Development Credit Bank (DCB), and Kotak Mahindra Bank, according to a report in the Economic Times.

Also contributing to the growth in disbursements, Indian MFIs have successfully diversified their sources of funding through securitization of their loans. “Last year, we initiated the process of securitization and have securitized loans to the tune of Rs 40-50 crores (USD 8 to 10 million) with Development Credit Bank and ICICI Bank. We are also in negotiations with other private banks for further securitization,” said Muralidharan.

There have been several Indian MFI securitization deals over the last few months, including deals done by Equitas Finance, SKS Microfinance, and Share Microfin. Due to the unique aspects of microloans, such as short maturities, origination risk resulting from the short maturities, the key role and risk of the MFI as servicer, and the lack of standardized ratings, most microloan securitizations are actually loan assignments, in which the banks purchase an MFI’s microloans without housing the assets or issuing securities backed by the loans. Securitization of actual underlying receivables or pass-through certificates, such as that done in the deal by Equitas, are more unusual.

To read more on the recent securitization deal done by Equitas Finance read this MicroCapital story. For more information on securitizations by SKS Microfinance read this MicroCapital story. To read more about Share Microfin’s securitization deal and collaboration with Yes Bank, click here.

Founded in 1993 and based in Tamil Nadu, India, Grama Vidiyal Microfinance Ltd is a non-governmental microfinance institution. According to the MIX Market, the microfinance information clearinghouse, as of March 31, 2008 Grama Vidiyal serviced 224,108 active borrowers, had a gross loan portfolio of USD 28.9 million, total assets of USD 30.8 million, a debt-to-equity ratio of 5.45, an ROA of 1.63 percent and an ROE of 15.3 percent. The MIX Market does not profile Madura Micro Finance. According to its own website Madura has 182 branches and disbursed total loans of USD 35 million in 2006-2007.

By Laura Anderson, Research Associate

Additional Resources:

Mydigitalfc.com: Micro-finance bodies report good credit growth in FY09

Grama Vidiyal: Home

Madura Microfinance: Home

MIX Market: Grama Vidiyal Profile

MicroCapital Story: Rising Interest Rates and New Reserve Bank of India Capital Adequacy Requirements Put Pressure on Indian MFIs

MicroCapital Story: Indian Microfinance Institution Bandhan Sells Agricultural Loans Worth USD 35.4 Million to Punjab National Bank and Other Commercial Banks

The Economic Times: MFI Bandhan Unlocks Capital by Selling Rs 180-cr Farm Loans

MicroCapital News Wire September 2008: India: Banks Lap up Microfinance Institutions’ Farm Loans

MicroCapital Story: Equitas Micro Finance Gets Transaction Securitized and Rated by CRISIL, Structured and Arranged by the Institute for Financial Management and Research

MicroCapital Story: Indian SKS Microfinance Issues Bonds and Commercial Notes and Announces a $963.6m Borrowing Plan to Finance Rapid Growth