Women’s World Banking board member and head of network member Ujjivan Samit Ghosh was quoted in an article in Business Standard about difficulties of transformation in the Indian microfinance industry.
Will microfinance firms make good banks?
One of the hurdles for MFIs towards becoming banks is an unsecured loan portfolio
One of the key impediments for MFIs towards becoming banks is an unsecured loan portfolio, points out Samit Ghosh, president, MFIN, and managing director, Ujjivan Financial Services. Earlier, Ghosh led the launch of retail banking for Standard Chartered in the Middle East and South Asia, and HDFC Bank in India.
Collateral-free lending is the essence of microfinance lending. However, for banks, high unsecured loans mean high risk-weighted capital. “Unless MFIs are given some special dispensation for unsecured loan portfolio exposure, it will be difficult for them to convert into a bank. Banks and MFIs have very different cost structure. For instance, the cost of operations of a bank involves higher salaries than MFIs,” says Ghosh.
Read the full article on the Business Standard website.