Hit by lockdown, MFIs apprehensive for growth, likely to shelve expansion plans

Kolkata, Apr 6 () The microfinance institutions(MFIs), which are currently feeling the pinch of thecoronavirus pandemic with their operations being suspendedduring the nationwide lockdown, are concerned about the near-term growth of the industry, officials said on Monday.

The MFIs will concentrate more on protecting theirexisting portfolios, once the lockdown will be lifted, andmany of them may shelve their expansion plans for the timebeing, a self-regulatory organisation of the sector,Microfinance Institutions Network (MFIN) chairperson ManojKumar Nambiar said.

Speaking on the outlook for the industry, he told :"Performance of the MFIs in the current fiscal which has justbegun, will depend on when the lockdown will be lifted and howquickly the governments, both the Centre and the states,arrest the pandemic.

"The first quarter will certainly get affected ascollections will fall in April and May because many borrowerswill opt for the moratorium package."

Nambiar, further said, disbursements to existingcustomers will continue but micro-lenders will be cautions toextend credit to the new ones during this crisis period.

The short-to-medium-term impact of the coronavirusoutbreak and the subsequent measure of the lockdown to combatthe pandemic seems to be more on the urban in-formal sector ascompared to agriculture-based rural activities, another selfregulatory organisation of the sector, Sa-Dhan executivedirector P Satish told .

"MFIs with more exposure in urban informal sectorswill face more difficulties than an lending institution havinga large number of rural sector borrowers," he said.

The Association of Microfinance Institutions, WestBengal member and Village Financial Institution's managingdirector Kuldip Maity said it will take at least six monthsfor non-agro portfolios to get into normalcy and the overallindustry growth for the FY21 may slip to 15 per cent.

Ruling out any possibility of retrenchment in thesector amid the threat that the economic growth will beadversely impacted due to COVID-19 crisis, Nambiar said, "Theindustry will need to retain their staff so that thecollection and the recovery activities can start once thelockdown is over."

However, he said, "expansion plan of many institutionswill either be put on hold for the time being or required tobe tweaked as the MFIs will try to protect their existingportfolio and concentrate more on the steadying the ships."

"Certainly, they do not want to expand into newgeographies in this point of time," he added.

Despite the disruption in the second half of March,the last month for a financial year, due to the coronaviruspandemic, Satish is, however, optimistic that the microfinanceindustry will clock an growth of about 20 per cent in FY20over the previous year, but apprehensive about the same in thecurrent fiscal.

During the lockdown period, the operations of the MFIshave been mostly suspended. Branches are closed and no field-work is going on. Staff of the institutions are currentlyworking from home and engaging with the customers over phone,Nambiar said.

"Microfinance is basically a group-based lendingapproach. Since there are restrictions on movement, neithermembers of small borrowers' groups, nor loan officers ofmicrofinance institutions are able to meet.

"Almost everything becomes standstill. Loandisbursement as well as collections from borrowers came to ahalt during the lockdown," Satish said.

A few organisations are disbursing advances throughonline arrangement, which accounts for not even 10 per cent ofthe business, he said.

The disbursements as well as collections wereadversely impacted due to the coronavirus outbreak and theongoing nationwide lockdown, the officials said.

Usually, the disbursements reach its peak beforeclosing of a business year, and last week of March is alwayshectic, Nambiar, who is also managing director of ArohanFinancial Services, said.

"A rough estimate suggests that Rs 500 crore of moneyis usually disbursed to micro borrowers by the MFIs on a dayin the last week March. Owning to the lockdown, around Rs3,500 crore could not be disbursed to borrowers by 75-80entities in the last seven days of FY20," he told .

He said the first half of April is, however,considered to be a "slow period" in terms of disbursement.

Collections from borrowers have also been affectedduring the 21-day lockdown imposed to contain the COVID-19pandemic, he said.

"The loan portfolio of the microfinance industry byend of December 2019, was about Rs 2.12 lakh crore and thecollections per month typically stands at an average 9-10 percent of that.

"Again, a rough estimate indicates that around 5,000crore of money could not be collected during the last week ofMarch," Nambiar said.

Asked whether the three-month moratorium, as per RBI'sguideline, will be extended to the micro borrowers, he said,the package will be "offered to small borrowers and it is upto them whether they will opt for it or not".

"The scheme is about extending the loan tenure bythree months. There is a cost implication in the form ofinterest rates, if one opts for the moratorium package. But noborrowers will be penalised for delay in payments for March,April and May," he said.

MFIs also started seeking the 3-month moratorium onloan repayment from their lenders such as banks and otherfinancial institutions, Satish said.

"The MFIs expect a back-to-back moratorium from theirlenders who are banks and financial institutions. This is veryimportant as without that the micro lenders would not be ableto extend loans to their end clients who need it the most inthis difficult period," Nambiar said.

Satish predicted the micro credit demand willhopefully pick up with the progress of the current financialyear, as small borrowers will need fund to reorganise theirbusinesses as and when the normalcy in the economy isrestored. BDCRG RG