The big boys of the financial world are piling into the microfinance business. Last week, Citibank announced a partnership with SKS Microfinance where the latter will give small loans to the rural poor and the bank will later buy these Rs180 crore worth of loans. Earlier, ICICI Bank too had entered into similar deals with barefoot bankers.
Such a model—where the microfinance group originates the loan and a big bank then buys it—could be extended further. Pools of such tiny loans could be used as collateral for bonds that can be sold to all types of investors as asset-backed securities. This is why a new deal announced last week is of interest. Morgan Stanley and Blue Orchard, a Geneva-based microfinancier, will sell $108 million of bonds backed by microloans in 13 countries and rated by credit rating agencies. The deal is a further step in the journey of microfinance towards the financial mainstream, and something worth emulating in India as well.