Speaking at a seminar organised by FICCI, Sushil Muhnot, CMD, of Small Industries Development Bank of India (SIDBI) said the margin cap imposed by Reserve Bank of India (RBI) for microfinance institutions (MFIs) would lead to consolidation in the sector.
In order to prevent MFIs from charging usurious interest rates, the RBI earlier imposed a 12 per cent margin cap, which is the difference between cost of funds and lending rate.
The move would result in search for economies of scale and cause consolidation as larger size and operational efficiency will help drive down costs.
Speaking at the financial inclusion seminar organised by the industry chamber, Muhnot said the MFI sector evolved in two phases — first was the establishment of not-for-profit Trusts for undertaking micro finance activity and the second was the conversion of the Trusts into non-banking finance companies (NBFCs).
Large MFIs may acquire their small and unviable peers in order to attain economies of scale. The 12 per cent margin cap has been prescribed for all MFIs classified as NBFCs irrespective of their size till March-end 2014.
According to the RBI norms, to be effective from April 1, 2014, large MFIs can have a maximum margin of 10 per cent, while small ones can have margin of 12 per cent at the most.
RBI defined large MFIs as those whose loan portfolios exceed Rs 100 crore. According to industry body MFIN, which has 41 MFI members, who on an aggregated basis, constitute around 85 per cent of the microfinance business in the country, MFIs had 9,086 branches and a collective gross loan portfolio of Rs 21,245 crore as at March-end 2013.