SIDBI Foundation for Micro Credit (SFMC) was launched by the Bank in January 1999 for
channelising funds to the poor in line with the success of pilot phase of Micro Credit
Scheme. SFMC's mission is to create a national network of strong, viable and sustainable
Micro Finance Institutions (MFIs) from the informal and formal financial sector to provide
micro finance services to the poor, especially women.
SFMC is the apex wholesaler for micro finance in India providing a complete range of
financial and non-financial services such as loan funds, grant support, equity and
institution building support to the retailing Micro Finance Institutions (MFIs) including
two-tier MFIs so as to facilitate their development into financially sustainable entities,
besides developing a network of service providers for the sector. SFMC is also playing
significant role in advocating appropriate policies and regulations and to act as a
platform for exchange of information across the sector. The launch of SFMC by SIDBI has
been with a clear focus and strategy to make it as the main purveyor of micro finance in
the country. Operations of SFMC in the coming years, are not only expected to contribute
significantly towards development of a more formal, extensive and effective micro
finance sector serving the poor in India, but also ensure sustainability at all levels viz. at
the apex level (SFMC), at the MFI level and at the client level to ensure continuance of
such arrangement. Most importantly, SFMC has strived to create a mechanism in which
there should be no barriers to growth. Under the dispensation, there is focus on
innovation and action research.
SUPPORT OFFERED TO MFIs:
In keeping with its mission, SIDBI Foundation identifies, nurtures and develops select
potential MFIs as long term partners and provides credit support for their micro credit
initiatives. The eligible partner institutions of SIDBI Foundation, therefore, comprise large
and medium scale MFIs having minimum fund requirement of Rs. 10 lakh per annum.
Large and medium scale MFIs having considerable experience in managing micro credit
programmes, high growth potential, good track record, professional expertise and
committed to viability are provided financial assistance for on-lending. Under the present
dispensation, annual need based assistance is provided to enable MFIs to expand their
scale of operations and achieve self sufficiency at the earliest. Lending is based strictly
on an intensive in-house appraisal supplemented with the capacity assessment rating by
an independent professional agency. Liberal security norms have also been adopted to
reduce procedural bottlenecks as well as to facilitate easy disbursements.
The long-term future of the micro-finance sector depends on MFIs being able to achieve
operational, financial and institutional sustainability. The constraints and challenges vary
with the different types and development stage of MFIs. Most MFIs are currently
operating below operational viability and use grant funds from donors for financing upfront
costs of establishing new groups and covering initial losses incurred until the
lending volume builds up to a break-even level. The MFIs are generally constrained in
reaching a break-even level and finally achieving sustainability, primarily due to a narrow
client and product base, high operational and administrative costs for delivering credit to
the poor, and their inability to mobilise requisite resources. Moreover, lack of technical
manpower, operational systems, infrastructure and MIS are prevalent. In view of the
above, to scale up micro-finance initiatives at a faster pace, a special effort is required
for capacity building of the Micro Finance Institutions. In this background, SFMC has in
the past under the DFID collaboration (which has since come to an end on March
31,2009) provided need based capacity building support to the partner MFIs, in the initial
years, to enable them to expand their operations, cover their managerial, administrative
and operational costs besides helping them achieve self-sufficiency in due course.
LIQUIDITY MANAGEMENT:
In view of the fact that liquidity is a major concern of many of the middle level MFIs and a
small working capital support can go a long way in their better liquidity management and
thus pave way for faster growth, SFMC has introduced a special short term loan scheme,
Liquidity Management Support (LMS) for the long term partners.
EQUITY:
Provision of equity capital to the NBFC-MFIs is perceived as an emerging requirement of
the micro finance sector in India. SIDBI provides equity capital to eligible institutions not
only to enable them to meet the capital adequacy requirements but also to help them
leverage debt funds. Keeping in tune with the sectoral requirements, the bank has also
introduced quasi-equity products viz., Optionally convertible Preference share capital;
Optionally convertible debt and Optionally convertible Subordinate debt for new
generation MFIs which are generally in the pre-breakeven stage requiring special
dispensation for capital support by way of a mix of Tier I and Tier II capital.
TRANSFORMATION LOAN:
The Transformation Loan (TL) product is envisaged as a quasi-equity type support to
partner MFIs that are in the process of transforming themselves / their existing structure
into a more formal and regulated set-up for exclusively handling micro finance
operations in a focused manner. Being quasi-equity in nature, TL helps the MFIs not only
in enhancing their equity base but also in leveraging loan funds and expanding their
micro credit operations on a sustainable basis. The product has the feature of conversion
into equity after a specified period of time subject to the MFI attaining certain structural,
operational and financial benchmarks. This non-interest bearing support facilitates the
young but well performing MFIs to make long term institutional investments and acts as
a constant incentive to transform themselves into formal and regulated entities.
The Micro Enterprise Loan Scheme - Direct Credit:
The Micro Enterprise Loan Scheme - Direct Credit provides need based composite loan
(ranging from Rs. 50,000 to Rs. 5 lakh ) to Micro Enterprises directly for acquiring capital
assets and also for their working capital / marketing related requirements. The
assistance is covered under the CGTMSE scheme. The scheme is currently operated by
the 7 specialised Micro Finance Branches.
LOAN SYNDICATION:
Keeping in view the increased fund requirement of major partner MFIs, the Bank has also
undertaken fee based syndication arrangement where loan requirement is comparatively
higher.
MICRO ENTERPRISE LOAN:
In order to build and strengthen new set of intermediaries for Micro Enterprise Loans, the
Bank has formulated new scheme for Micro Enterprise Loans. Institutions/ MFIs with
minimum fund requirement of Rs. 25 lakh p.a. and having considerable experience in
financial intermediation/ facilitating or setting up of enterprises/ providing escort services
to SSI/ tiny units/ networking or active interface with SSIs etc. and having professional
expertise and capability to handle on-lending transactions shall be eligible under the
dispensation. The institutions would be selected based on their relevant experience,
potential to expand, professional management, transparency in operations and well laidout
systems besides qualified/ trained manpower. Lending to be based strictly on an
intensive in-house appraisal supplemented with the credit rating by an independent
professional agency. Relaxed security norms more or less on line with micro credit
dispensation to be adopted to reduce procedural bottlenecks as well as to facilitate easy
disbursements.
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