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Lending to MFIs by the
Commercial Banks
Endnotes
1 For purposes of comparison, if only 60 per cent of ICICI lending is taken as lending for the MFI model,
the total amount for all reporting banks, Rs 1,991, is of roughly the same broad order of magnitude
as Sa-Dhan's estimate of the total outstanding of their members of Rs 1,600 crore. While reported
data on outstandings under the SBLP are not available, they are understood to be roughly 70 per cent
of cumulative disbursements under the SBLP (see footnote 1, chapter 2), or Rs 8,000 crore.
2 Intellecap (2005) estimates that to achieve outstandings of Rs 12, 800 crore by 2010, the expected
level based on present trends, MFIs will require Rs 11,700 crore in the five years (2006 to 2010) for
on-lending funds, and a further Rs 1,100 crore as senior long-term debt to supplement equity in
meeting infrastructure requirements.
3 The other 40 per cent consists of bulk lending, SHG lending, and jewel loans, the last mostly through
the rural branches it acquired through its merger with the former Bank of Madura. The bulk of
partnership model lending is concentrated in a few large partners.
4 In this respect an FLDG is different from a guarantee mechanism under which the guarantor shares say
50 per cent of the overall losses. It is also different from a risk premium charged to all borrowers under
most forms of lending (including that to individual borrowers and bulk lending to MFIs) which functions
as a form of insurance, through which the lender recovers losses from other borrowers. In this case
losses are more likely to be of an all (or at least above the FLDG level) or nothing nature, since any
default below 10 per cent will be borne by the MFI , whereas losses could well be above the FLDG level
in the case of "catastrophic" events such as a flood, or even a political crisis such as that that occurred
in AP. Fortunately, in the latter case, the two main MFIs concerned are very large, and in a position to
absorb possible loan losses in the location concerned through a large portfolio, an overwhelming part
of which derives from a large unaffected area. This is unlikely to be always the case.
5 Thus SHARE has availed of a guarantee, amounting to 93 per cent of the FLDG, from Grameen
Foundation, USA.
6 The spread is the difference between the interest rate to the borrower and the bank's interest rate, and
is paid to the MFI upon the maturity of the portfolio, after adjusting for losses, if any.
7 The OD facility amounts in effect to giving back with the right hand what is taken from the left.
8 In two transactions with SHARE, ICICI securitized the receivables of SHARE loans amounting to Rs 21
crore. The 9 per cent was the discount rate used to discount the receivables over their maturity. The
FLDG was 8 per cent, 93 per cent of which was furnished by Grameen Foundation USA though a
guarantee.
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