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Banks join to audit books of key MFIs…..MANISH BASU & DINESH UNNIKIRSHNAN
Banks that lend to microfinance institutions (MFIs) have formed a consortium and are auditing the books of key firms to get a clear understand- ing of industry practices.
The initiative is being led by the Small Industries Develop- ment Bank of India (Sidbi), ac- cording to Chandra Shekhar Ghosh, chairman and managing director of Bandhan Financial Services Pvt. Ltd, India’s fourth largest MFI by loan portfolio. Kolkata-based Bandhan’s books are currently being audit- ed. “I know of such audits being conducted at three-four other MFIs,“ Ghosh said. “We wel- come the move.“
It is not new for banks to ex- amine the books of MFIs to which they lend, but this is the first time they are sharing intel- ligence among themselves, and trying to understand how the in- dustry works, he added.
Though not triggered by the ongoing crisis, the audit is aimed at understanding if the quality of assets remained sound, and if MFIs had proper systems for loan disbursement and recovery, according to a banker, who is part of the lend- ers’ forum conducting the audit.
He did not wish to be identified. Commercial banks made fresh loans to the tune of at least `7,782.36 to MFIs in fiscal 2010, and their collective outstanding loans to the industry were at `9,940 crore at the end of March, according to a recently released report by Access Devel- opment Services, a not-for-prof- it organization that offers con- sulting services to MFIs.
That apart, Sidbi alone had a loan exposure of `3,808.2 crore as of 31 March, having made fresh loans of `2,665.75 crore to MFIs in fiscal 2009-10, accord- ing to Access.
The figures are based on pro- visional data provided by the National Bank for Agriculture and Rural Development (Nab- ard), Access says, and the actual exposure of Indian financial in- stitutions, which includes re- gional rural banks and some banks that didn’t report figures, could approach `15,000 crore.
The audit could be expanded, and the books of 10-12 MFIs be examined, according to the banker cited above. He said au- dits at two leading firms–SKS Microfinance Ltd and Equitas Microfinance India Pvt.
Ltd–had already been conclud- ed. Spokespersons for SKS and Equitas, however, said they were not aware of any such au- dit. Officals from twelve private sector and foreign banks that lend to MFIs had met to give feedback on the MFI industry for the Access report. Of them, six had a positive outlook on the sector, while three said they were to “exercise caution“ and closely watch “emerging devel- opments“, and the rest said their outlook was “not positive“.
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