Several NBFC-MFIs found the clauses attached for taking the funding support from Sidbi quite stringent. They believe the clauses may create roadblocks in raising fresh equity from new investors.
One of the clauses says that NBFC-MFIs cannot take fresh equity capital at terms more favorable than those offered to Sidbi, unless such terms are approved by it.
Sidbi offers optionally convertible preference shares (OCPS) with a promise to convert them into equity before three years of the first tranche of the investment. Sidbi puts restrictions on raising fresh funds before conversion of the OCPS.
“Some of the clauses are more administrative in nature and could make the process of fresh fundraising slow. Normally, a minority shareholder does not ask for such stringent rules,” a chief executive of a mid-sized NBFC-MFI said, on the condition of anonymity.
Sa-Dhan, the older of the two microfinance industry associations, has 69 members out of which 33 are small in size with below Rs 100 crore portfolio. These lenders need capital support the most since they don’t get outside capital so easily. “There are some misconceptions. Some of the MFIs see the possibility of losing management control if they take IMEF funds. We are reaching out to them and assuring them that the clauses are part of stardardised documents and Sidbi has no business in micro management,” Sidbi chief general manager SP Singh told ET. “The scheme is being actively promoted with an aim to support smaller and socially oriented MFIs as well as encourage new age MFIs looking to create impact and scale up operations in unserved and underserved areas,” he said.
He added that Sidbi is currently evaluating 13 proposals with five of them having been circulated to the investment committee.
Last month, the development financial institution organized two workshops for members of the Microfinance Institutions Network and Sa-dhan to address the concerns.
The IMEF was initially launched in 2011 with an initial corpus of Rs 100 crore which was subsequently enhanced to Rs 300 crore. The scheme aimed to support relatively smaller MFIs by subscribing to their equity or providing quasi equity by subscribing OCPS issued by them. The scheme had lost momentum in between and was mostly non-functional in the past four-five years.