Microfinance Horizon

By Vinson Kurian

Thiruvananthapuram, India

4 December 2010 [BusinessLine]

The diversified Kerala-based Muthoot Pappachan Group (MPG) is gung-ho on the prospects in the micro-finance sector, and is close to acquiring a leading player in the North.

Mr Thomas Muthoot, Executive Director, MPG, told Business Line the group is conducting a due diligence on the company which he refused to identify.

EQUITY PLAY

The 75 per cent cap in foreign equity has also emerged as an issue in the micro-finance sector with most players having reached, or close to reaching, the ceiling. This leaves the promoter with little elbowroom to bring in additional finances.

Given this context, MPG is willing to acquire stakes in micro-finance institutions (MFIs) in places where the group does not have a presence, Mr Muthoot said.

According to him, the crisis in Andhra Pradesh is but a temporary blip in what he described as the perennial growth phase in the sector.

“We are convinced about this, and are in fact looking to stepping up activities of the Muthoot Mahila Mitra, the micro-finance initiative, in Kerala, Karnataka and Tamil Nadu,” Mr Muthoot said, clarifying that Andhra Pradesh was being left out for obvious reasons.

ACCION TIE-UP

MPG has a tie-up with the US-based Accion International, a leading international player in the micro-finance sector, for training and capacity building of micro-entrepreneurs.

Mr H. Siddhartha Chowdri, Country Manager, Accion Technical Advisors India, which had earlier seen similar situations crop up in Latin American countries, agreed that the Andhra Pradesh crisis is part of the evolving phase of the sector.

According to him, the crisis in the industry is less about the level of interest rates than that of individual indebtedness ranging from person to person.

The programme that MPG and Accion have formatted is called Sthreejyothi, under which more than 2,000 of the 28,000-micro entrepreneurs have undergone specific training in Kerala alone.

The micro-finance initiative is also being designed as a mechanism to acquire new customers for MPG, a leading player in the loan-for-gold business in the country.

“By next year, we aim to touch one lakh clients in the micro-finance sector alone, who would add as many new customers for MPG,” Mr Muthoot said.