KARACHI: Agricultural inputs maker Auriga Group is interested in acquiring Network Microfinance Bank (NMB) to augment its business by extending loans to farmers for buying fertiliser, seeds and pesticides, a senior company official said on Tuesday.
The troubled NMB, a subsidiary of Jahangir Siddiqui and Company, focuses on micro-lending in Karachi. Its board has allowed Auriga to start a due diligence for the purchase of 70 percent shares, the bank said in a notice to stockholders.
“Small farmers need money more than anyone else,” said Jamshed Iqbal Cheema, CEO of Auriga Group. “Our studies show that farmers have a higher capacity to repay and that too in a matter of months.”
Time required for return on investment to materialise is higher in urban areas, he said. “In cities, return will come after three years and so the repayment duration is long. Farmers borrow for maximum of four months. Once the harvest is sold, they are in a position to payoff loans.”
A lot of farm input suppliers have opened up their own service centres in Pakistan over the years. They sell the products on credit. But this would be the first time a company buys a microfinance bank for the purpose, he said.
This will allow Auriga Group to access various refinancing schemes of the central bank and other multinational donors.
Financial penetration in Pakistan is one of the lowest where rural population mostly relies on family and friends to borrow money. Cheema said that the middlemen, commonly known as Aartis, charge between 20 percent and 25 percent interest.
“We see that if a bank offers a loan at lets say nine percent, farmers will be more willing to borrow money.”
Contrary to general perception, illiterate farmers have a higher tendency to repay loans, he said. “Also the people living in villages are very sensitive about their reputation. It is shame to have someone at the door demanding money.”
Auriga has 1,000 staff spread across the country, each individual stationed at a distance of 25 kilometres from the other, Cheema said. “This strength will help us in the recollection process.” The NMB has five branches and seven service centres, all located in Karachi. Financial statements of listed banks were not available on its website.
Auriga did not disclose the amount, which it intends to invest on NMB once the transaction is complete.
Source: The News
