At a time when the Andhra Pradesh government is clamping down on lending by microfinance institutions in the state, United Bank of India?s chairman and managing director Bhaskar Sen said there is no reason to panic if banks are doing due diligence of MFIs and monitoring the end use of funds.
According to Sen, a due diligence about the business model of the microfinance institutions and random surveys of beneficiaries will tell the banks about ground realities.
?There is no reason to panic about MFIs. With a proper due diligence, check on end use and random surveys, things are unlikely to go wrong,? Sen told FE.
?Whenever we take exposure in any of the MFIs we first get a very clear picture of their business model. We restrict ourselves from lending to microfinance instituions whenever we see that their rate of interest is more than 25-26%,? the UBI chief said.
?Microfinance institutions are not charitable organisations we cannot expect them to work voluntarily. They are labour intensive and for their sustenance it has to be a viable proposition,? Sen added.
While he admitted that there are cases of over leveraging and double lending, he said, ?I don’t think that may lead towards any sub-prime like situation.?
