India loans

Discussion in 'Kiva | Loans That Change Lives' started by jbcarioca, Aug 6, 2012.  |  Print Topic

  1. jbcarioca
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    jbcarioca Gold Member

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    Now that Kiva is beginning in India, some of us may be interested in looking in more detail regarding the highly detailed and complex world of micro-lending regulation in India.

    First, a few general points:
    The Reserve Bank of India (RBI) (the central bank) regulates many features of micro-lending, including maximum loan size (no commercial loans masquerading as micro-loans in India!), packaging and many other factors.

    There was a new master regulation covering micro-loans that was released by BRI on 2 July this year, only a month ago, and includes all regulations released through 30 June 2012. This makes life far easier for everyone who had to meander through disconnected regulations before last month:
    http://rbidocs.rbi.org.in/rdocs/notification/PDFs/93MCDS020712.pdf

    This is the RBI regulation dealing with External Commercial Borrowings, including specific provisions for foreign borrowings by MFI's. This regulation explicitly does NOT mandate a minimum maturity of three years, but an average maturity of three years, a vastly different limitation, which will produce a typical tenor of five to six years, depending on interest rates and repayment schedules. Kiva may have been given special dispensations under these regulations. BTW, NGO's engaged in Micro-Finance are required to fully hedge FX risk, a big plus for us as lenders. The details below are taken from the RBI circular of May 1, 2012
    http://www.iibf.org.in/documents/guidelines-on-ecb.pdf

    This is the RBI regulation on hedging. India is one of only a tiny group of countries taht explicitly allows MFI's to hedge FX risk, greatly easing foreign borrowing risk for borrowers, and reducing risk for foreign lenders. The specific dispensations for FX risk heding in micro-finance are included in the regulation below:
    http://rbidocs.rbi.org.in/rdocs/Content/PDFs/DCGF12112009.pdf

    In the first and third attachments regulations covering other business are included also. Most of us will not care. Some of us might be interested to see how far the RBI has gone to clean up and facilitate micro-lending. IN the second attachment some of us might also be interested to see the specific provisions for individual States, sectors and areas. This is yet another illustration that micro-loans in India are different than they are elsewhere and more importantly, they are a hot political topic also.

    If anybody really wants to know more there is much, much more information available.

    For any of us who want to lend to India is it a very good idea to understand some fo these issues before tying up your money for several years.
     
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  2. milchap
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    milchap Gold Member

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    Given the timeframe of repayment of Indian loans, I will take a pass on them.
    I do not want to have a loan outlive me......and I am serious here as I am 70 +
     
  3. milchap
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    milchap Gold Member

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    Thanks jbc for the research and the post. :cool:
     
  4. jbcarioca
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    jbcarioca Gold Member

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    These are not thirty year average maturity loans, milchap, they're only three!:D Don't worry about it, you'll be around for several more rounds!
     
  5. milchap
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    milchap Gold Member

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    Thanks for the reassurance. I take every day as a gift. :)
     
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  6. YULtide

    YULtide Gold Member

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    +1!
     
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  7. KyRoamer
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    KyRoamer Gold Member

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    I too have turned 70 but having heard repeatedly that only the good die young and am not worried about loans outliving me. [​IMG]
     
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  8. dgilks

    dgilks Silver Member

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    Thanks for the information and the links JB. I suppose my problem with these loans is going to come down entirely to implementation. If the 3 year average is implemented as a average such that there are loans with shorter tenor along with longer loans then I can see myself lending to the shorter term loans (especially given the reassuring level of regulation in the sector). However, if the minimum length ends up being three years (and in Kiva terms that generally means 38 months), that is just too long for me. I'd rather see that $25 cycle through three or four lenders in that time rather than one. I'll also be relatively comfortable if the India loans end up being marketed as 3 year but actually post repayments early in which case the net effect is that the funds aren't tied up for massive periods of time.
     
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  9. AliatKiva

    AliatKiva Silver Member

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    As many of you have probably already seen, today is the day that we launched in India! http://www.kiva.org/india

    Because of RBI regulations and Kiva's unique model, loans to borrowers in India have a term of 43 months. This accounts for the 36 months that loan funds must remain in India (which we treat as a minimum because we're newly sending funds to India, even though, as JC posted above, the actual regulations require an average of 36 months). In addition to the 36 months in India, the loan term includes 7 months to allow for the longest possible time it could take for a loan to be posted, funded, and for the funds to be returned to Kiva and disbursed to lenders.

    We're really excited about the work our Field Partners in India are doing, and we're thrilled for the launch, which has been in the works for several years. If you've got questions about the logistics of how loans in India will work, we've got some FAQs on the India page and others in the Help Center.
     

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