Micro-finance firms turn into delivery boys

Wednesday, May 30, 2007

India?s microfinance, which is perhaps the ruling flavour of private equity players, is actually turning out to be a distribution highway for a variety of goods and services given the huge outreach of over one million customers each that large entities like Share, SKS, Basix and Spandana have managed to create.

Fuelled by private equity investment and expansion, many of these entities are looking at reaching as many as five million people each in the near term. While the creation of reach has been purely for their own businesses of vending micro-loans, it now transpires that their channel could be widely used, and profitably too, for peddling insurance, money transfer, procurement and supply chain financing for agri and allied activities.

Akin to banks tying with other services providers like insurance and raising their fee-based income, MFI players also stand to benefit from commission fees for routing various goods and services through their channel. In fact, the model not only reduces the transaction costs for the new services, but also would eventually reduce the cost of micro-loans from MFIs.

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Source: The Economic Times (link opens in a new window)