NGOs in Chennai had formed SHGs to help beggars and commercial sex workers get back into mainstream occupations. With the help of SHGs, HDFC Bank helped these people to start small business units like vegetable vending, and paan shops. “The NGOs wanted to know whether the bank would be comfortable in lending to these people. We were looking at encouraging people who were neglected and who have gone out of the mainstream. We have been working with NGOs and SHGs to help these socially-deprived people to set up small businesses,” says HDFC Bank’s EVP and head of MFIs, Kishore Kumar.

In the past one year, HDFC Bank has doubled its portfolio under this segment to Rs 500 crore as of now. It has ties with 75 MFIs and 100 NGOs across 12 states. “Around one million families have been benefited through these initiatives. In the next three years we will more than double this portfolio every year, which would help benefit at least four million families,” says Mr Kumar. HDFC Bank is not alone in this initiative. A host of other banks like Standard Chartered Bank, ABN AMRO, HSBC, ICICI Bank and public sector banks like Union Bank of India, State Bank of India and Indian Bank have been active in this space.

StanChart has tied up with around 15 MFIs, but plans to increase this base to 25-30 in a year’s time. It has committed funds of $40 million for Indian microfinance operations, with an outstanding portfolio of $15 million and a client base of 1,50,000 customers. It plans to reach a target of $100 million by end-2008. StanChart’s CEO, India, Neeraj Swaroop, said, “Microfinance has become another line of commercial activity within the bank. The demand for microfinance is enormous in India, provided the intermediaries have the ability to absorb the credit in a cost-effective manner.” Loans under microfinance goes into financing petty traders, small shops, stalls, vendors, livestock rearing and agri-related activities and also consumption, education and building enterprises.

StanChart plans to serve as a conduit for multilateral institutions who are looking to enter the Indian microfinance space, said Ranjan Ghosh, regional head, financial institutions, StanChart. The bank has pooled its MFI assets in 10-12 markets, including Africa and South Asia, into a medium term note (MTN) programme, worth $125 million.

Many of the overseas development financial institutions have shown an interest in subscribing to this issue. Dutch bank ABN AMRO Bank has a presence in 17 states, through its partnerships with 27 microfinance institutions. It has a current outstanding portfolio of around Rs 180 crore, while it has approved lines of credit worth Rs 250 crore and a client base of 4,50,000. By 2009, ABN AMRO plans to reach a portfolio target of Rs 500 crore.

The bank’s SVP and head-microfinance, Moumita Sensarma, points out, “Almost 50% of the loans are for agriculture and allied activities such as livestock rearing. A large chunk goes towards funding small grocery stores and leasing of land for sharecropping activities.” Banks are able to earn a spread of 2% to 3% in this business. Also, for most players there have been virtually no delinquencies. Banks are also looking at non-interest income business like forex products, hedging for the NGOs who sometimes receive grants or loans from the multilateral agencies. These loans also qualify for priority sector lending exposure.

Economic Times, India