Low-income households can now get some help to augment their incomes and create assets.
This, thanks to a market-based funding model, that is being initiated by the ICICI Foundation for micro finance institutions (MFI) and other such firms.
“Though there is a lot of demand for funds from low-income households, the existing MFIs and other firms involved are not in a position to meet the demand due to lack of sufficient funds,” said Nachiket Mor, president ICICI Foundation.
Commercial banks do not involve themselves in these activities due to heavy costs involved in micro lending to, say, below Rs 10,000 to a construction worker, or a provision store employee.
Funding through securitisation, which is being developed through the new funding model, enables raising fresh funds through mainstream investors like high net-worth individuals (HNIs) and financial institutions, and by selling their existing loan portfolio. The funds so raised could be used for further lending.
Once this model is implemented, funds available for offering small loans, including those below Rs 10,000, through MFIs could grow manifold.
Rating agency Crisil and IFMR Trust, a Chennai-based private trust involved in ensuring financial services to everyone, have come together with ICICI Foundation to develop this model.
“Investors are showing interest in low-rated financial instruments, of late. So, instruments consisting of good quality loan portfolios will also evoke interest among them,” said Roopa Kudva, managing director and CEO, Crisil.
Under the agreement, Crisil would develop evaluation frameworks for MFIs and disseminate rating criteria for such entities while IFMR will facilitate the process by providing access to enterprises working in these areas.
ICICI Foundation will ensure wide dissemination of these processes. The agreement also encompasses rating of urban local bodies and vocational training institutions. “Rating of vocational training institutes will help build credibility,” Kudva added.
“We will identify 10-15 MFIs or such lenders soon to initiate the process,” said Bindu Ananth, president, IFMR Trust.