India: MFIs See Demand Picking Up Soon Due to Emergency Loan Requirement, Kharif...

May 2020
India, May, 05 2020 - Microfinance institutions (MFIs) believe the industry will bounce back in no time as they see demand for microcredit rising soon because of emergency loan requirements of their customers to restart businesses.

The MFIs, which have started resuming operations in the green zones across the country, said kharif cultivation will regenerate demand as well.

Cash flows are getting stretched for the industry due to the ongoing countrywide lockdown, with the MFIs unanimously deciding to offer moratorium to their customers as permitted by RBI, recognising the impact of the Covid-19 pandemic on the livelihoods of low-income household borrowers. However, the MFIs are yet to formally receive a moratorium from all their lenders.

Talking to FE, Harsh Shrivastava, CEO of industry body MFIN, said some of the member MFIs have resumed operations in the green zones and the others will start soon.

“There will be demands for microcredit because of emergency loan requirements of customers to restart their businesses. Good customers will also need top-up loans to expand their businesses,” Shrivastava said.

Dibyajyoti Pattanaik, director of Bhubaneswar-based MFI Annapurna Finance, said: “Credit demand will come because kharif is here. Customers will need money for cultivation, purchasing inputs and making labour payments.”

Annapurna Finance is looking to start operations in the green zones by next week, depending on availability of staff. “We are encouraging our customers to avail the three-month moratorium on payment of loan instalments because the lockdown has impacted their cash flow. But whoever is willing to pay can do so digitally,” Pattanaik added.

Annapurna Finance may consider providing the facility of topping up loan to its existing customers if it sees such demand.

“At Annapurna, we have already got a moratorium for 60% of our banks and our liquidity position is good. However, for further disbursement to pump money into the rural economy, we would require fresh disbursement from banks. We are talking to some of them. We have not yet got any, but there are some unavailed sanctions. Also, new sanctions are in the pipeline. We are hopeful that we will get some,” he added.

Microfinance lenders’ umbrella body Sa-Dhan has requested direct lending by RBI to NBFC-MFIs. During a video conference with RBI governor Shaktikant Das on Monday, P Satish, executive director of Sa-Dhan, also sought reasonably priced debt funding from DFIs (Sidbi, Nabard, Mudra) to meet medium and short-term liquidity requirements of NBFC-MFIs. “Reasonable priced access to credit by NBFC-MFIs is important to ensure that customers are given affordable credit. Risk-based pricing may not be right approach at this time,” Satish said.

Echoing Pattanaik, Kuldip Maity, MD of Kolkata-based Village Financial Services (VFS), said kharif cultivation was expected to generate demands for microcredit. Maity further said the microfinance industry will bounce back quickly once business operations of the customers restart after complete lifting of the lockdown. “The bouncing back of the industry will not take much time. I think it will take only one month after the lifting of the lockdown. Refinancing activity of Sidbi and Nabard is expected to ease current cash flow strains of MFIs,” he said, adding VFS had already started operations in many green zones.


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