LM : ABN Amro Bank NV Comes up with New Microfinance Initiative : Apr 6, 2007 

ABN Amro Bank NV wants to reach out to one million small borrowers in India
in the next two years through its microfinance initiative. In 2006, the bank’s
microfinance portfolio in the country stood at ?26.2 million (around Rs152
crore), and it loaned out money, indirectly, to 3.4 lakh individuals, mostly
women.

Since 2003, ABN Amro India has funded Indian microfinance institutions
(intermediaries), which, in turn, give out small loans to borrowers who do
not have access to credit from banks in the mainstream banking system. The
Dutch bank has 27 such partners to which it lends out money, across 15
states-its partners include SKS Microfinance Pvt. Ltd, BASIX Group, Bandhan
Konnagar and CASHPOR Micro Credit.

Moumita Sen Sarma, head of microfinance and sustainable development for ABN
Amro India, said the partnership model in India “proved very beneficial in
terms of the rate of growth that we see because we were riding on an
infrastructure that already existed”. In India, ABN Amro was limited by its
branch network like most foreign banks and could not lend to borrowers
directly. According to the bank, the model it was forced to adapt proved
effective; the bank’s microfinance operation broke even in its first year.
ABN Amro has not been the only bank to see the potential of this sector.
India’s largest commercial bank, State Bank of India, and the largest
private sector one, ICICI Bank Ltd, have been in this space for a while.

Among others, HDFC Bank Ltd, Standard Chartered Bank Plc., HSBC, UTI Bank
and Yes Bank, are also building their microfinance portfolios. Reuters
reported on Thursday that another private sector lender, Development Credit
Bank, would also enter the microfinance market.

The Netherlands-based ABN Amro operates in 60 countries across the world,
offering microfinance in three: Brazil, India and the United States. In
Brazil, the bank’s microfinance portfolio grew 29% to ?5.8 million in 2006.
This comprised loans given directly to individual borrowers and small
enterprises that lack access to credit.

In the US, the bank funds microfinance houses that assist start-ups and
small businesses in economically-disadvantaged neighbourhoods. These efforts
are part of its global initiative to invest in businesses that address
poverty and climate change.

In addition to funding intermediaries in India, ABN Amro also develops
smaller microfinance institutions with the long-term goal of expanding the
sector. “It was very much clear to us right in the beginning that the
distribution network that existed was not adequate,” Sen Sarma said. “We had
to invest in building the capacity and expanding the network because that
would end up being the bottleneck for our own activities at some point in
time.”

The bank hopes to do this increasingly through ABN Amro India Foundation,
which was recently created to mirror a similar fund that was launched in
Amsterdam the year before. “There is a very comprehensive set of activities
that we will undertake between now and the next three years for increasing
the capacities of microfinance institutions,” said Sen Sarma, speaking about
the goals of the foundation.

The India fund has ?5 million to spend over three years on developing
microfinance institutions (MFIs).

Sen Sarma added that the purpose of this investment was “to raise the level
of very small and emerging MFIs so they can actually become financial
intermediaries and, therefore, broaden the entire base of the microfinance
sector”.

ABN Amro has been recently targeted for a takeover by the United Kingdom’s
Barclays Plc. Sen Sarma said this would not change the bank’s plans in
microfinance.