Just a few days ago (on 25th July) I saw an interview of Shyam Sekhar (Twitter:@shyamsek, FaceBook: https://www.facebook.com/shyamsek) where he said: “Microfinance is organized usury. Wouldn’t give a P/E multiple to usury”.
Yesterday, in less than a week, Ujjivan Financial Services – a microfinance company that was recently listed on exchanges, announced that their net profit more than doubled in last quarter.
What caught my attention was this line:
“Net interest margin, or the difference between the yield a bank earns from loans and what it pays on deposits, stood at 12.97% against 11.59% a year ago.”
Contrast this with HDFC Bank which announced results last week, and reported Net Interest Margin of just 4.4% (which is still way high!)
So Shyam Sekhar was bang on in his observation! Microfinance is indeed organized usury.