Megacorps in microfinance

On March 3, Tina Ambani, wife of Anil Ambani, Chairman, Reliance Anil Dhirubhai Ambani Group (R-ADAG), handed over a Rs 5 crore cheque to Mukesh Gandhi, Co-founder and Director-Finance, of Ahmedabad-based MAS Financial Services Limited (MFSL), a specialised retail financing organisation. That marked the entry of R-ADAG into the Indian microfinance space. “Our vision is to provide access to finance at the grassroots level by partnering with MFIs (microfinance institutions) serving rural and semi-urban areas.

This initiative is in line with the group’s commitment to play a serious role in bringing value to the lives of the underprivileged and the aged in India,” says Tina Ambani in a release put out by the company after she handed over the cheque. The amount, which is the first of two Rs 5-crore tranches, is in the form of a loan given away at a competitive interest rate (similar to that offered by the banks); but, more importantly, such loans given to organisations like MFSL provide an added avenue to raise resources.

Reliance Capital Ltd (RCL), a financial services company from the R-ADAG stable, has tied up with another MFI, Vardan Trust, also based in Gujarat; over time this could be RCL’s vehicle for a national rollout of its microfinance initiative. RCL plans to fund MFIs in Gujarat and Maharashtra in the first phase and subsequently have a national presence.

Reliance is not the only biggie eyeing this space. Those in the Indian microfinance field talk of plans of others like Mukesh Ambani and Sunil Mittal of Bharti to enter this space.

“Over the past nine months or so, we have been aware that some of the big players are planning to make an entry into the Indian microfinance space as we could sense some aggressive recruiting and benchmarking salaries,” says Vikram Akula, Founder and CEO, SKS Microfinance. A clear indication, at least in the case of Temasek’s Fullerton, came when last year it hired Brahmanand Hegde, Head-Rural and Micro Banking Group, at ICICI Bank. At the bank, he was the second-incommand in microfinance to Nachiket Mor (the former deputy MD at ICICI Bank and currently President, ICICI Foundation for Inclusive Growth) and is regarded as one who played an important role in the Indian microfinance space.

Akula feels the entry of bigger players is a welcome development for the sector as borrowers will now get a greater choice. Also, the increased competition, coupled with the fact that many of the new entrants will have access to lower-cost funds, will help in bringing down interest rates. He, however, does not see this as any threat to existing players as many of them, like SKS, have built and put systems in place over the past 10 years and continue to have low-cost structures that cannot be easily replicated. Also, this is one industry where borrowers tend to be quite loyal, but only if they are treated well.

“The entry of big players like Reliance will provide an additional important source of finance to MFIs and this can be used to reach out to borrowers more effectively,” says Mukesh Gandhi. “MFIs often find raising capital a difficult proposition. This partnership will help us in optimally utilising our expertise in distribution of credit to tiny and small enterprises for income generation activities, consumption and emergency needs,” adds Gandhi.

Since 2001, in microfinance alone, MFSL has made total disbursements of Rs 200 crore, has built a customer base of 1.5 lakh, 61 branches across 1,400 locations in Gujarat and is now expanding to Mumbai.

— E. Kumar Sharma