NBFC-MFIs to begin fresh lending only after expiry of moratorium

Kolkata: A majority of non-banking finance companies-microfinance institutions (NBFC-MFIs) are planning to resume fresh lending in September, while the weak liquidity situation may impede the lending capacity of small and medium firms, Microfinance Institutions Network (MFIN) said.
At present, some of these lenders are lending to merely a small fraction of borrowers who have started paying back dues after a two-month pause. The industry body believes that about 60-70 percent MFIs would gear up only after the expiry of the Reserve Bank of India-guided moratorium of loan repayment. But the sector would take more time to restore normalcy.

The total estimated collective disbursements by NBFC-MFIs up to September could merely be Rs 2,884 crore, Microfinance Institutions Network (MFIN) said in a report. This is significantly less than the average disbursements of around Rs 6,600 crore per month seen in FY20.

“The weak liquidity situation of NBFC-MFIs has restricted their ability to disburse loans to their customers. The focus of the NBFC-MFIs would be to preserve liquidity but at the same time they will have to start re-lending in a gradual manner to their clients so that they are able to restart their livelihoods,” MFIN said, after doing a study on the impact of Covid relief measures.

Around 45 MFIs out of 54 MFIN members have responded to the study, which has been reviewed by ET.

The study showed that the microfinance sector has received debt and refinance support worth Rs 3,000 crore from banks and financial institutions since April while about 97% of it has been restricted to the bigger NBFC-MFIs, making the small and medium-sized MFIs gasping for liquidity.

Among MFIN members, 13 out of 17 large MFIs, 4 out of 17 medium MFIs and merely 2 out of 12 small MFIs are reported to have received funding support after lockdown.

Besides, the sector has another 100-odd smaller micro lenders with less than Rs 200 crore outstanding loans, who are left in the lurch with little support. The older industry body Sa-Dhan, which has over 200 members, has sought the government’s direct intervention for liquidity injection in these lenders.

“Despite various measures by the government and RBI, the situation of the NBFC-MFIs is precarious as the benefits are not reaching them, severely undermining their ability to help their borrowers revive their livelihoods and kickstart the rural economy,” MFIN said.

Data from 45 NBFC-MFIs showed that they had sought moratorium on Rs 4,000 crore loans in April and May while banks and other lenders had granted moratorium for Rs 1,982 crore, leaving a 52% gap.

The collection efficiency or repayment rate of NBFC-MFIs has fallen to just about 10% at the end of May, the report pointed out, on the basis of the feedback it received from its members.

“MFIN foresees gradual improvement in repayment rate every month, but the extension of moratorium by another three months up to August, would impact the credit culture. As a result, a significantly higher timeframe would be required for the NBFC-MFIs to reach the pre-crisis collection efficiency level,” it said.

The collection efficiency or repayment rate has generally been above 95% for NBFC-MFIs.