Over-borrowing a concern in growing microfinance sector: Smile Microfinance MD Murali Srinivas
Smile Microfinance CEO Murali Srinivas feels that the microfinance sector needs to leverage technology to ensure sustainable growth.
The microfinance sector needs to leverage technology to ensure sustainable growth, Murali Srinivas, Managing Director and CEO of Tamil Nadu-based Smile Microfinance Private Limited, tells Binita Jaiswal in an interview.
Despite the economic slowdown, the microfinance sector is going strong. What is your take on it?
It’s really encouraging that the microfinance sector is witnessing growth. The primary reason behind the growth is the ability to maintain high repayment rates. Besides, understanding the need of the consumers and providing them the right kind of services. However, in this growth scenario we have to be very cautious as it brings risks like over-borrowing. Instead of aggressively focusing on disbursement of loans we need to utilise the opportunity to take the sector to the next level--Microfinance 2.0.
What do you mean by Microfinance 2.0?
For sustainable growth, we have to upgrade ourselves with the changing times and focus more on innovations and leveraging technology. With the introduction of information technology and artificial intelligence in our services, we can provide better products and services to our customers, and at the same time enhance our growth. I am focusing now on digitising the operations of my company. Microfinance provides loans at a very high rate of interest.
The RBI has been doing a good job in regulating the MFIs, their products, pricing and ensuring the protection of customers. The RBI has margin caps for interest rates and it changes every quarter depending on our cost of borrowing from banks. It is a fact that the interest rate in MFIs is higher as we have to repay the borrowed money and need protection from a high risk of default as we don’t take any security before providing a loan.
Don’t you think the interest rates should be reduced?
I am sure in future the interest rates will drop significantly. A decade ago, microfinance companies used to provide loans at an interest rate of more than 35 per cent, and now it has come down to 26 per cent.
What are the major challenges for the microfinance sector?
Over-borrowing is the main concern. The institutions need to focus on proper loan management and creating their brand value.
Tell us about your company.
Smile has a presence in three states — Tamil Nadu, Kerala and Chhattisgarh — and we have over 2.7 lakh borrowers. We are soon going to launch our branches in Karnataka, Jharkhand and Odisha and strengthen our position. We provide loans to women members of joint liability groups.
These loans are granted to women essentially for use in their small businesses or other income-generating activities. In fact, the success of the microfinance sector depends on the fact that the majority of our customers are women. Women borrowers are loyal customers and they repay the loans with more diligence.