The microfinance industry has sought time till 2015 to adhere to the 10% margin cap imposed on large lenders. The Reserve Bank of India had put a cap of 10% on microfinance institutions in an August 3 circular.
Microfinance institutions in the country function on an average operational cost ranging between 12% and 14%. While the MFIs have gradually brought down operational costs by 50% in last two years, the apex bank feels costs can be brought down further, especially for those with a portfolio size of more than R100 crore. Total loan portfolio of 41 MFIs as on June, 2012 was pegged at R17,154 crore. Members and representatives of microfinance institutions met RBI deputy governor Anand Sinha a fortnight ago.
The apex bank has brought down margin cap for microfinance institutions with a portfolio over R100 crore to 10% from 12% earlier, while keeping the margin cap for institutions with lower than R100 crore portfolio at 12%. As on June 2012, there were 21 MFIs in the country with a portfolio size of more than R100 crore.
Operational cost for the MFIs consists of three main factors — personal cost, administrative cost and provisioning cost. Personal cost contributes to around two thirds of the operational cost while administrative cost and provisioning costs constitute the rest.
“We need time at least till 2015 if we have to bring it down finally,” said Chandrashekhar Ghosh, founder and mentor of Bandhan. “Operational cost can be brought down if loan size is increased. But with a larger loan size risks towards creation of bad assets also increase,” Ghosh said. Bandhan has one of the lowest operational costs in the microfinance industry. “We have to keep strong supervision in order to track repayments and that requires men deployed on the field,” he said. The 41 microfinance institutions in the country employ around 65,000.
According to Subhankar Sengupta, the managing director of Arohan Financial Sevices, greater equity infusion into MFIs can help in bringing down debt and improve margins of the MFIs.