Creditworthiness of MFIs tops our criteria

Naina Lal Kidwai, CEO of HSBC India, has more praise for the creditworthiness of microfinance institutions when she talks about lending to the sector.

The Chief Executive Officer of The Hongkong and Shanghai Banking Corporation, (HSBC) India, who is also the first Indian woman to head the operations of a foreign bank in India, has pointed out that despite the global credit crisis, microfinance sector has withstood its record in repayments and creditworthiness.
In an exclusive interview with Microfinance Focus in New Delhi after the inaugural session of the Microfinance India Summit last week, she said, “What makes the microfinance sector different is its capability to honour all the debts when other financial sectors like credit cards and other small loans failed miserably.”
Though funds to the sector declined in the last one year, it was an effect of the overall impact on financial services and not merely the microfinance sector, she said and quickly added that the pie of microfinance was certainly growing. “Unless we damage the creditworthiness of the sector by irresponsible multiple lending, microfinance is bound to get a biger pie in fund inflows,” said Ms. Kidwai.
Citing the example of Mexico where credit history of every small individual is available, she said there is a need for credit rating institutions and credit bureaux in India to mitigate the effect of irresponsible lending or multiple borrowing that is affecting the sector in many areas of the country. Community lending and self-help groups have an advantage in terms of tracking individual lending which will help the sector, she said.

There were concerns like subprime, then real estate crisis and now microfinance bubble, she remarked. Justifying the fear among the lending agencies, she said it was caused since everybody is chasing one borrower but flagging about the crisis makes lenders aware of the problem and look for safety measures, she pointed out. At macro level, penetration of lending among the microfinance borrowers is still less and there is a huge potential in this sector, she added.
With increased cost-effective measures, the rates of interest can be brought down, said Ms. Kidwai on the issue of higher interest rates in microfinance. It requires rotation of funds and effective management.
On succession of top level management in the microfinance sector, she said the issue is equally important for all financial institutions, whether banks or family-run companies. The top man who has brought the company to its peak level also requires to draw a clear line of succession and in this regard big corporates have shown the way, she said.