Mumbai: Ratan Tata, chairman emeritus of Tata Sons, Vijay Kelkar, former finance secretary and chairman of the National Institute of Public Finance and Policy, and Nandan Nilekani, co-founder of Infosys Ltd and the architect of Aadhaar, are joining hands to start a microfinance institution (MFI).

Named Avanti Finance, the company, a “technology-enabled financial inclusion vehicle", will focus on “delivering affordable and timely credit to under-served and un-served segments in India", said a statement from Tata Trusts.

Avanti will apply to the Reserve Bank of India for registration and is expected to start operations before the end of the financial year, added the statement.

Tata and Nilekani are investing in setting up this microfinancier from their respective philanthropic capital and “any gains will be reinvested in philanthropic causes", said the statement.

R. Venkataramanan, managing trustee of the Sir Dorabji Tata Trust, will be the fourth founding director. A senior leadership is already in place, the release said without providing any details.

Tata, who retired as chairman of Tata Sons in December 2012, has spent almost two years investing his personal wealth directly in technology start-ups both in India and overseas through RNT Associates. He has invested in firms such as Snapdeal (Jasper Infotech Pvt. Ltd), online furniture store Urban Ladder (Home Décor Solutions Pvt. Ltd), cab-hailing service Ola (ANI Technologies Pvt. Ltd) and online lingerie store Zivame (Actoserba Active Wholesale Pvt. Ltd).

Nilekani declined comment.

Micro-lending will be “one of the activities", said a person directly involved in the venture, on condition of anonymity. This project is “specifically using technology platforms for making available finance at low costs to the bottom of the pyramid".

The Tata Trusts statement said that “the aim is to leverage on the social sector presence of Tata Trusts and other like-minded partners and the rapidly evolving India Stack (Jan Dhan-Aadhar-Mobile), UPI (unified payments interface) and payments bank ecosystem. Avanti would use this ecosystem and will innovate on product design in consonance with the indigenous needs, to deliver seamlessly for the end consumer".

According to RBI guidelines, a MFI should have a minimum net owned fund of ₹ 5 crore. Net owned fund includes paid-up equity capital, free reserves, balance in share premium account and capital reserves.

The loan portfolio of MFIs stood at ₹ 53,233 crore at the end of March, up 84% from a year ago, according to data from the Microfinance Institutions Network (MFIN), a self-regulatory organization for the industry.

“Industry and thought leaders like Ratan Tata and Nandan Nilekani venturing into microfinance is indeed exciting news. It underscores the fact that microfinance has got mainstreamed," said Alok Prasad, former chief executive officer of MFIN. “Use of technology and fully leveraging the power of Jan Dhan-Aadhaar-Mobile trinity will, among other things, bring down operating costs."

Technology will help microfinance companies reduce their cost of operations and ensure that the end-beneficiaries get loans at a lower price. Under norms issued last year, the central bank had said that microfinance companies with loan books worth ₹ 100 crore and above will have to maintain a 10% cap on the margin they charge customers, over and above their cost of borrowing. For microfinance companies with loan books over ₹ 100 crore, the cap is set at 12%.

“The promoters strongly believe that the institutional inequalities and information asymmetries are depriving the target customer segment of access to affordable credit. The target customer segment over the last few years has displayed very low delinquency rates compared to any other customer segment, but still is charged the highest rate of interest," said the statement from Tata Trusts.

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