Manipur discovers the transformative power of small banks 

Armstrong Chanambam

IMPHAL: In just three months, North East Small Finance Bank (NESFB), which has two branches in the twin capital city of Imphal East and West, has disbursed loans to over 3,000 women who needed to finance their small businesses. Both branches handle over 350 clients seeking loans every day. However, the loans are issued only after meticulously screening clients and taking approval from their guarantors. In most cases, the borrower’s husband and family act as guarantors. 

Deepak Samom, 34, a chicken-feed seller from Imphal East, said even though it’s relatively easy to procure a loan from NESFB, the bank doesn’t issue loans to customers if any of the five members of the joint-liability group (JLG) isn’t present when the loan is disbursed, because of illness or other reasons. Deepak waits on his wife as she negotiates with bank officials to procure a micro loan which can range between Rs. 25,000 to Rs. 35,000 in the first cycle.

He says that, unlike other banks, NESFB issues loans without having to produce lots of documents. The bank issues micro loans to small businesses in several stages, starting from the initial cycle of dispensing loans between Rs. 25,000 to Rs. 35,000 and graduating to the second cycle where customers can avail loans from Rs. 50,000 upwards. But the bank has a maximum cap of Rs 100,000 in the third cycle under its JLG scheme.

For borrowers at bottom of pyramid

Salam Mema, 45, a mosquito-net maker and seller from Uripok Huidrom Leikai in Imphal West, said after taking a loan of Rs. 35,000 in the last week of February, she has been able to finance her small business. Mema said she can buy a thal (a length of fabric) for anything from Rs. 1,500 to Rs. 3,000 and can tailor seven mosquito nets which will fetch her a profit of not less than Rs. 500 each. She also now supplies fabric for tailoring mosquito nets to others like her. 

Mema said it was happenstance which led her to take a loan from NESFB as she joined a joint-liability group of 15 women at the insistence by one of her cousins. The group was short of members and she joined it after taking approval from her husband. 

Shanta Lourembam, manager of NESFB's Imphal East branch at Prompat, says that Rs. 4.5 crore has been disbursed to around 1,500 clients over the past three months. Meanwhile, Ajay Waikhom, branch manager of the Imphal West branch at RIMS Road, says that the outstanding amount for the last three months is Rs. 4.8 crore and the branch has issued loans to 1,545 loan seekers. 

Pranjal Medhi, head of liabilities and marketing at NESFB, says as the bank has a micro-finance background, it is limited to lending money to women borrowers from the bottom of the pyramid. But, now that it has become a full-fledged bank, it will start lending to all sections of society from April onward. 

“Eight of our branches which earlier operated as micro-finance institution (MFI) branches have been converted into bank branches and the remaining 145 branches will also gradually be upgraded to full-fledged bank branches,” says Medhi.

He also said as NESFB graduates from an MFI to a bank, it will also launch mobile banking to reach out to far-flung areas. But given its micro-banking background, the bank prefers to hold camps with potential customers to spread financial literacy.

Thangjam Laishung Meetei, NESFB’S micro-banking manager of Imphal East, says the bank lends at 23% per annum at a reducing rate. He said both the branches lend only to those clients located within a 17-km radius as of now. Meetei says he has three credit officers to assist him and they collectively help finance a variety of small businesses, including weaving, embroidery and tailoring, small eateries, poultry farming and cultivation of green leafy vegetables such as Chinese chives and cabbages.

Other loans in pipeline

NESFB officials say the response they have got to their micro-finance initiatives so far has been phenomenal and well beyond expectations. The bank which has an asset book close to Rs. 1,000 crores and liabilities of around Rs. 200 crores, plans to provide other loans including retail, small-and-medium enterprise, agricultural and home-improvement loans from the next quarter starting April.

Medhi claims that their turnaround time in loan processing is faster than other bank and their field and credit officers go door to door to reach people in far-flung areas while also conducting meetings and camps. He also says, that to NESFB's credit, it has retained 4.7 lakh clients that it developed through its microfinance initiatives.

An official of a cooperative bank in Imphal says his bank lends at 15% per annum at reducing rates, significantly lower than NESFB’s 23% rate. Moreover, some loan seekers complain that each member of the JLG is required to deposit Rs. 1,000 before the loan request can be considered.

But as NESFB becomes more like a regular bank and increases its deposit base, its cost of funds will fall, and they will be able to pass on that saving to their customers in the form of lower borrowing costs. That will also allow it to compete with every other bank, be it a cooperative, private or public-sector bank.