Missing Middle: Microfinance Industry Hopes Small Finance Banks Will Fill Gap

Microfinance industry experts who addressed the annual Inclusive Finance Summit 2015 in New Delhi on Wednesday have expressed optimism that the new Small Finance Banks will fill the "missing middle" in reaching the unbanked and bottom of the pyramid.

Eight out of 10 Small Finance Banks which have been given in-principle nod by RBI are microfinance institution (MFIs). While some have expressed concern over the void it would create in the sector, many were upbeat about the success of these SFBs in the near future.

IIM-B Professor M.S.Sriram kicked off the second-day session on "Financing the Missing Middle: Policies, channels and Products" with his remarks that "Small Finance Banks will cater to the need of missing middle", while Vistaar COO Ramakrishna Nishtala said the missing middle segment will witness significant growth in the next five year though it will not be spectacular by industry standards. He said proliferation of NBFCs could address challenges of ‘Missing Middle’. Since banks are not flexible at innovation with new products, the challenge falls on MFIs, which operate at the grass-roots level, he added.

However, P.N Vasudevan of Equitas, one of the 8 MFIs to get nod to set up SFBs, said the unique concept of doorstep delivery of the microfinance institutions should not be given up when the MFIs transform into banks. Microsave speaker Graham Wright said the non-SFB microfinance institutions should not be wary about the switch of the peers. The vacuum will help these non-SFB MFIs to move faster in widening their reach as banks may be reluctant to lend them under the CSR (Corporate Social Responsibility).

Samit Ghosh of Ujjivan, whose organization has also been given the SFB nod, said, "Today customers dictate MFIs, if we dont give them loans on time, they are ready to go elsewhere…If we treat deposit business like loan business, we will fail! They are completely different."

The Inclusive Finance India Summit, which was kicked off on Tuesday with the customary release of the Sector report 2015 was followed by several sessions on microfinance and financial inclusion in the country. At the end of the sessions, Minister of State for Finance Jayant Sinha presented winners of Microfinance India Awards 2015. Bangalore-based Grameen Koota was given the industry’s top award this year.

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