Thursday, August 24, 2006

Is ICICI Bank providing microfinance directly?

An article in BusinessWeek Online seems to indicate that a whole bunch of commercial banks in India are directly into microcredit, providing loans as low as $130 (Rs. 6,000) to rural people.
Mor signed off on a one-year, $130 loan that will allow the family to buy a buffalo and sell its milk. And written into this loan contract is a most unusual clause. If the animal isn't milking, the family gets a moratorium on its monthly loan repayment. "The client would need to find other money to service the loan or even sell the buffalo to pay us, which would be counterproductive for both of us," explains Mor, deputy managing director at ICICI.
I think this may at best be a publicity stunt. I can't see Nachiket Mor signing a $130 loan with any of his customers except for a photo op. To my knowledge, ICICI Bank is only lending through other microfinance institutions. To quote from The Wall Street Journal article found at Echoing Green site,
ICICI Bank Ltd., India's largest private-sector bank in capital, has gone so far as to give Mr. Akula an open line of credit. The bank says its more than $10 million in loans to SKS have been low-risk and give it a slightly higher return on capital than it gets from its corporate borrowers. "This could be bigger than any other business that we have got," says Nachiket Mor, executive director at ICICI Bank in Mumbai, the city formerly known as Bombay. ICICI Bank teams up with about 100 microfinance institutions, through which it plans to hand out loans and sell insurance.
With the exception of The State Bank of India, I can't see any of the Indian banks or foreign banks based in India going into the rural areas. We really need models like SKS Microfinance come up across the country.

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