Indian banks develop a liking for microlending
Wednesday, March 19, 2014
India’s microlending industry, dominated by traditional microfinance institutions (MFIs), is witnessing a re-emergence of interest from commercial banks, which are targeting low-income borrowers.
In the past, banks had stayed away from offering microloans in rural areas because of the high operational costs involved but are now using so-called business correspondents to re-enter the segment. business correspondents are agents of banks operating in far-flung areas of the country, where only MFIs used to operate before.
Commercial banks are following the traditional operational model of MFIs in microlending—be it charging a high interest rate or a no-collateral policy while giving small loans. The tenure of these loans is between 1 year and 3 years and the banks lend anywhere between Rs.15,000 and Rs.25,000 to customers.