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Alternate banking channel company FINO PayTech has signed an agreement with Reliance Commercial finance to offer credit to rural poor in the states of Maharashtra and Madhya Pradesh. Note that the loans will be will provided by Reliance Commercial Finance and the disbursement will be through FINO Fintech Foundation, an associate company of FINO PayTech.
FINO says that the tie up will help the company gear up for the launch of its payments bank. FINO was among the 11 applicants which got an in-principle nod from the Reserve Bank of India to set up a payments bank in August 2015. RBI’s guidelines explicitly state that a payments bank cannot undertake lending activities, but however they can undertake other non-risk sharing simple financial services activities, not requiring any commitment of their own funds, such as distribution of mutual fund units, insurance products, pension products, etc.
As such, it seems FINO will only be providing disbursement services for Reliance Commercial Finance and not actually provide the loan themselves.
Reliance Commercial Finance will offer small ticket size loans to women borrowers for a tenure up to 24 months for carrying out revenue generating activities as part of the tie-up. A pilot project has been initiated in the districts of Vidharbha region in Maharashtra, and Bhopal, Hardha, Khandwa, Vidhisha, Khargone in Madhya Pradesh, where loans are disbursed under Joint Liability Group (JLG) model.
JLG is a lending model to enable group of individuals (usually five) to take a group loan wherein the responsibility of loan recovery on all members and the members do not have to provide collateral for the loan.
“In the pilot locations, we have already disbursed more than Rs 2.5 crore in the last couple of months. We intend to scale this up by disbursing around Rs 500 crore to 2.50 lakh customers by March 2017 covering 50 districts/ 3000 villages in the 2 mandated states,” FINO PayTech executive vice president for the lending business, Vipr Bhardwaj said.
Foreign stake reduction
In August 2015, FINO Paytech‘s foreign shareholders, such as Intel Capital and Blackstone Group, said they would have to reduce their stake in the company in order to comply with the Reserve Bank of India’s guidelines on payments bank.
Earlier in September 2015, when FreeCharge launched its wallet, FINO also partnered with the company to reach out to build scale and ability to reach the under-served. It’s worth noting that FINO got its semi-closed prepaid payment instrument license renewedby the Reserve Bank of India in August.
In November 2014, Snapdeal had also partnered FINO with to launch assisted e-commerce centres in semi-urban, rural and low-income residential areas across India. At the time, Snapdeal had planned to set up such FINO PayTech-operated assisted e-commerce outlets or kiosks across 70,000 rural areas in 65 cities.