Mumbai: SKS Microfinance Ltd, a stock that’s been battered for most of its short listed life because of a regulatory tightening in its biggest market, gained about 2% on Monday after the Union government announced a Rs100-crore equity fund for lenders of micro loans in its Budget for 2011-12.
The scrip rose as much as 7.57% intraday to Rs655 before settling at Rs621.80 on the Bombay Stock Exchange (BSE) on a day the Sensex closed 0.69% up at 17,823.4 points.
The fund is intended to provide equity to small MFIs to help them “maintain growth and achieve scale and efficiency in operation,” finance minister Pranab Mukherjee said while presenting the Budget in Parliament. The proposed India Microfinance Equity Fund will be created with state-run Small Industries Development Bank of India, or Sidbi.
The government will also provide Rs5,000 crore to Sidbi to refinance bank lending to micro, small and medium enterprises. It also increased the agricultural credit target of banks from Rs3.75 trillion to Rs4.75 trillion for fiscal 2012. Banks can meet this target by buying agricultural and weaker sections receivables.
SKS, the country’s largest and only listed microfinance company, welcomed the announcements saying the Budget measures will help “augment the flow of credit to the sector.”
Microfinance Institutions Network (Mfin), an association of microlenders, too welcomed the budget support saying that it expects more government funding to come into the cash strapped sector.
“While the initial corpus (of micro finance equity fund) is modest, we can reasonably expect that more government funding will, overtime, flow into this fund. This, in turn, can also catalyze private equity inflows into the sector, from domestic sources,” Alok Prasad, chief executive officer of Mfin said.
Announcing the budget, Mukherjee said the government is considering a regulatory framework to “protect the interest of small borrowers.”
The Budget also proposes creating a Rs500-crore corpus for a development fund for women self help groups (SHG), Mukherjee said.
SKS listed on the bourses in August. In mid-October, the government in Andhra Pradesh, the country’s biggest market for microloans, promulgated a state law to regulate MFIs after allegations of coercive measures by them to recover loans.
It didn’t help that MFIs were lending tiny loans at interest rates of 24-36% while borrowing from banks at 9-12%.
The state government’s measures hurled India’s Rs20,000 crore microlending industry into a crisis. Banks, a major source of funds for MFIs, stopped fresh funding and many borrowers, encouraged by the state intervention, stopped repaying.