agent s of f i nanc i a l i nc lu s i on
65
increasingly the preferred social collateral arrangement
being undertaken at up to 26 per cent plus processing
charges. The disquieting feature of such arrangements
is that apart from first loss guarantees in the form of
‘alignment of risk’ taken from the NGO-MFI partner,
often the savings of the SHGs in their bank account is
not withdrawable and hostage to the guarantee agree-
ment. This also denies them the independence to use
these savings for internal rotation for emergency needs
while at the same time receiving loans at about twice
the interest rate applicable under the SHG-bank linkage
programme.
24
3.5 NBFC‐MFIs IN FINANCIAL INCLUSION:
BC PARTNERS OR SMALL BANKS
MFIs registered as NBFCs have been keen to act as
BCs of banks and to enlarge the scope and scale of their
operations. While banks were happy to meet their priority
sector lending targets through the MF portfolio default
to MFIs on loans inevitably led to default by MFIs to
the banks. By using MFIs operating as agents of banks
in the form of BCs there is greater supervision by the
banking system. Besides, the outreach and distribution
structures of MFIs can be used by banks to provide credit
as also a wider range of financial services. A critical service
that is made possible under this arrangement is that of
savings along with related services such as insurance and
pensions and remittances. MFIs can develop a network
of agents offering a wide range of services using card or
mobile-based technological devices.
By sharing the risk and return of lending to this
clientele many MFIs that have been functioning as
NBFCs have taken on the additional role of operating as
BCs of banks through subsidiary and affiliate organiza-
tions and undertaking lending through this channel and
also initiating savings and other services. The areas of
operations of the NBFC and the BC can be different.
From the point of view of the NBFC-MFI economies
of scope are also available by operating in parallel dual
channels of financial services delivery as both retailer and
agent. It also helps to cement the relationship with the
partner bank for enlargement of the scale of operations
of the NBFCs. In the case of Margdarshak, Lucknow, an
NBFC-MFI, through an affiliate first took on the role
of field support BC and later transformed it into credit
intermediary BC for a private bank to complement and
supplement its MFI operations.
Thus the industry association of 48 leading NBFC-
MFIs greeted the RBI announcement on 24 June 2014
permitting banks to engage non-deposit taking NBFCs
(NBFCs-ND) as BCs with unabashed delight as it was
something that had been much sought after. Some
MFIs felt that using the existing NBFC/MFI networks
would allow a large increase in accounts opened and
clients serviced, though client protection could be an
issue. However, other MFIs feel that BCs may not be
the solution as MFIs still remain dependent on banks for
the daily settlement system. It would be good to explore
if well regulated MFIs could be rolled out as payment
banks.
25
Before any progress could be made in this
direction, RBI issued guidelines for the setting up of
small banks and payments banks. The profile of eligible
promoters as per small bank guidelines issued by RBI
on 17 July 2014 suggested a perfect fit for experienced
NBFC-MFIs as the eligible promoters. Similarly,
the payments bank option provided an opportunity
for enlarged operations for them with over half the
membership of MFIN understood to have expressed
interest. At the same time it is hardly likely that when
licences are given it will not be done on a highly selective
basis. A process of differentiation may set in with the
large NBFC-MFIs, having a portfolio of say Rs. 1,000
crores and above, transforming into banks with the vast
majority left to fight within the BC space with the non-
profit NGO-MFIs.
3.6 SHG NETWORK AS BC
In this context the possibility of SHGs and their mem-
bers (as also their federations and associations) acting as
BCs has not been widely examined by banks. There is
a fairly large consensus among NGOs and SHPIs that
primary/secondary SHG federations could function
as BCs/BFs (or even BC agents of corporate agen-
cies as BCs) and SHG members as BC agents/CSPs.
26
However, this idea does not seem to find favour with
banks who would rather engage with good NGOs and
SHPIs. In some respects it is the SHGs themselves that
have the best qualifications to act as BCs or sub-agents.
However, they still do not figure on the list of eligible
entities.
