We'll Target Women, MSME Sector After Starting Banking Operations: Microfin Company The journey of the Fincare began with an equity investment by IVFA in 2010 with an acquisition of a stake in two NBFC-MFIs

Disha Micro Finance, one of the 10 organisations that received the small finance banking license from Reserve Bank of India (RBI) is likely to start its operations from July first week. Speaking to the Entrepreneur India, Keyur Doshi, chief financial officer of Disha Micro Finance discussed the company's focus areas and plans moving from a microfin to a small banking entity.

As a small finance bank, Disha Micro Finance will target rural women and micro, small and medium scale enterprises (MSMEs). "We are mainly into semi-urban and rural areas. Rural women will be our major target audience. We will also focus more on the MSME segment. We are helping women gain financial empowerment and thus working towards their economic uplift. As a small finance bank, the advantage will be that our sources of funds would change and we will have diversified funds at lower rate, which would result into reduced rate for borrowers," Doshi said.

From NBFC MFI to Small Finance Bank

Started in 2009, Disha Microfin currently operates as an NBFC MFI. It operates in seven states — Gujarat, Madhya Pradesh, Rajasthan, Maharashtra, Karnataka, Tamil Nadu and Andhra Pradesh — with a loan portfolio of about Rs 1,500 crore.

The journey of the Fincare began with an equity investment by IVFA in 2010 with an acquisition of a stake in two NBFC-MFIs viz. Disha Microfin Pvt Ltd (Disha), based in West India, and Future Financial Services Limited (FFSL), operating in South India.

RBI had given small finance bank licenses to 10 applicants in September 2015. Of the 10 applicants that had received licenses, seven have already started operations, which include AU Small Finance Bank, Capital Small Finance Bank, Equitas Small Finance Bank, Utkarsh Micro Finance, Suryoday Microfinance, Ujjivan Small Finance Bank and ESAF Small Finance Bank

"We have applied for the final license about 45 days ago and are expecting revert anytime soon. It will take another 60 days for us to complete the formalities. Accordingly, we are planning to start the operations by first week of July," Doshi said.

Started in 2009, Gujarat based Fincare-Disha claims to keep focus on micro financing as their major product and would like to expand in products like loan against property, gold loan, overdraft facility and other products like loans for commercial vehicles. Disha will also create small portfolio for institutional funding, as per Doshi.

Small finance banks generally provide basic banking services like accepting deposits and lending to underserved people and firms which include small business units, small and marginal farmers, micro and small industries and unorganised sector entities.

The Road Ahead

According to a World Bank paper—The Global Findex Database 2014-measuring financial inclusion around the World— India, China and Indonesia accounted for 38% of the world's unbanked adults.

One of the major reasons for the RBI to allow small finance banks was financial inclusion and expansion of financial services in rural and semi-urban areas which has been one of the top most agenda for the current government.

Disha currently operates across seven states and one union territory. The organisation does not have any major plans to expand into other states and will focus on deeper penetration in these states after starting the banking operations.

"We will start our operations with around 100 branches spread across these seven states and then slowly convert some of our existing offices into bank branches," Doshi added.

Small Finance Bank v/s MFI

One of the major advantages the institution will have in moving from a micro finance institution to banking structure would be the lower cost of funds which will allow them to have competitive interest rates and provide a better chance at organic growth.

"Currently as an NBFC, we procure funds from loans from banks, financial institutions, non-convertible debentures and other such sources. With the small bank operations, we can gamut funds from CASA (current account, savings account), fixed deposits and recurring deposits among others. These are all expected to bring down the cost of funds for both us and the customers," Doshi said,

Talking about major drawbacks for small finance banks vis-à-vis commercial banks, Doshi pointed out that small finance banks will not be allowed to open overseas branches, while 75% of their lending should meet the priority sector norms that are set by the government.

When asked whether Disha is worried or going through the ongoing bad loan problem Doshi said, small finance banks or micro finance institutions have not been impacted much from non-performing assets. "If I compare big banks and MFI industry in general, the latter does not have the problems which are related to the poor assessment of credit or the big projects as the loan sizes are very small. Additionally, we also have a cap on pricing and not more than two MFIs can lend to one person or group," Doshi said.

Another negative that Doshi feels may hamper the growth is that 50% of the loans of the small bank should be in the "below 25 lakh rupee" segment. "We are however confident that being a micro finance institution currently, we will be able to perform in a better manner as we generally follow these norms as general practice currently," he said.