DripFin means Drip Finance ala Drip Irrigation (i.e. small scientific value added productive measures)

Archive for May, 2008


India’s most exemplar pureplay MFI Cashpor Micro Credit  has broken even for the FY ending March 2008.  

Vinod Khosla (Ex. Sun Microsystems/KPCB/Khosla Ventures) has invested in Cashpor Micro Credit

Cashpor Micro Credit provides micro loans at ~13% Flat to women living below/on the poverty line as defined by the stringent Cashpor Housing Index.

Had  lunch with Prof. David Gibbon, an almost iconic figure in the Microfinance Sector, a few days back where he detailed the route and the structural changes required in operations leading to a breaking even.  I wish them all the best and hope to see Cashpor Micro Credit scale higher.


RBI moves to stop NBFCs` deposit mop-up / microsavings ?

The Reserve Bank of India (RBI) is slowly phasing out deposit-taking, non-banking finance companies (D-NBFCs) garnering public deposits.
 While RBI Deputy Governor V Leeladhar spoke of a need to review the policy last week, the industry expects an announcement in this regard in the forthcoming monetary policy slated for April 29. D-NBFCs are expected to be given sufficient time to convert themselves into non-deposit-taking companies or banks or shift to another model.

Officials of various D-NBFCs said RBI had already held informal discussions and had been trying to impress upon them for at least three years now that they should reduce their dependence on public deposits. This meant whatever deposits NBFCs had already accepted so far should be repaid, said the managing director of a D-NBFC.

The impact will be felt mainly by residuary NBFCs (RNBFCs), which are finance companies that depend solely on public deposits. Three RNBFCs — Sahara India Financial Corporation, Peerless General Finance and Disari India Savings and Credit Corporation — accounted for 91.7 per cent of the Rs 24,665 crore deposits mobilised by 362 NBFCs.

Last year, RBI asked Lucknow-based Sahara and Kolkata-based Peerless to stop accepting public deposits by 2010. Whenever RBI changes the policy regarding D-NBFCs, the three RNBFCs will have to shift to different models, according to an executive of one of the companies.

According to a communique from Peerless General Finance Managing Director S K Roy, posted on the company’s website, “Despite our having a wide range of products in the RNBC category, it is difficult to sustain our growth on the basis of this business as its future is uncertain due to strict regulations. With this in mind, we have forayed into the FPD (financial products distribution) business.”

Peerless is already working towards converting itself into an FPD company. The company has entered into tie-ups for distributing mutual funds, insurance policies (life and non-life), loan products and credit cards.

It is also asking its depositors to use the deposit to buy various financial products. A Sahara spokesperson refused comment, while Disari executives could not be reached.

Excluding RNBFCs, for most NBFCs, 5 to 10 per cent of their total resources come from public deposits, which are declining in importance in the last three years, while other sources such as market borrowings and bank finance have assumed more importance.

The reason why public deposits have become less attractive for NBFCs vis-à-vis other sources such as bank finance and market borrowings is due to higher resource mobilisation costs. The deposit rate is high, in addititon to the various costs associated with retail deposits such as transaction cost, printing and stationery cost, servicing cost, making them an expensive source, an industry expert said.

With the asset-liability management also proving tough, several NBFCs have stopped raising deposits. For instance, Mahindra and Mahindra Financial Services has not raised public deposits during the last three years.

Fullerton India, which also has a licence to raise public deposits, has not been raising funds from the public. For Bajaj Auto Finance, only 5 per cent of the resources come from public deposits, while it is less than 10 per cent for Shriram Transport Finance.

Says Fali Hodiwalla, manager, KPMG Advisory Services, “RBI has been fairly consistent in reiterating that commercial banks should be the sole mobiliser of public deposits. This is because banks have more regulations in place, capital adequacy norms, the disclosure and prudential norms are more stringent and therefore are a much safer avenue for the public to park their deposits.”

Besides, deposits up to Rs 1 lakh in a bank is insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), while deposits with NBFCs do not hold any such safety for a customer.