MFIs to turn business correspondents for banks

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MFIs to turn business correspondents for banks

Microfinance companies may be looking at all potential business opportunities to tide over the crisis in the sector. “They are now exploring the possibility of acting as business correspondents for banks to achieve financial inclusion,” reports Gopika Gopakumar of CNBC-TV18.

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Excerpts from India Business Hour on CNBC-TV18 Watch the full show » DCB BSE | NSE 29/05/12 Are Mutual Funds betting on DCB? Other Stocks in this news Axis Bank |

Microfinance companies may be looking at all potential business opportunities to tide over the crisis in the sector. "They are now exploring the possibility of acting as business correspondents for banks to achieve financial inclusion," reports Gopika Gopakumar of CNBC-TV18.

Many private sector banks are in talks with non-NBFC microfinance institutions (MFIs) to rope them in as business correspondents for them. Experts say this is a win-win deal for both, the banks and the MFIs. While this will help banks achieve financial inclusion faster, it will define a new business model for the smaller MFIs, says Gopika.

Speaking to CNBC-TV18, Narendra Nath Mishra, Head- Micro Fin & Rural Banking, DCB , says that there is a scope of including MFIs in the financial inclusion space because they add value in terms of cost efficiency backed by their reach. "Since non-profit MFIs can become business correspondents, discussions are on to see if there is a possibility of achieving banks' financial inclusion target partly through these MFIs," he informs.

Sa-dhan, an industry body of over 200 microfinance companies, says they have undertaken a study to resolve some of the challenges facing this MFI-Bank tie-up. "Banks are establishing some kind of incentive mechanism which we do not know whether is priced well enough to prevent perverse behaviour," explains Mathew Titus, Executive director of Sa-dhan. He also raised concerns on the fact that they are unaware if technology is ensuring validation of data and other securities and prudential regulation requirement. "Furthermore, are the necessary skill set embedded within both, the bank to deal with these set of clients, and within MFIs?" he questions.

As of now, only Axis Bank has officially tied up with Janalakshmi Financial Services, which is a for-profit NBFC MFI, reports Gopika of CNBC-TV18. "However, others are expected to follow suit once the MFI industry emerges from its crisis," she concludes.