Microfinance institutions want more from RBI

Anticipating fresh erosion of collection efficiency and liquidity following the catastrophic second wave of the coronavirus pandemic, the microfinance sector has lobbied for further financial assistance from the Reserve Bank of India.

Industry association Sa-Dhan has sought an emergency credit line for their members of up to 25 per cent of their outstanding loans with lending Banks. MFIs would be able to mobilize Rs 15,000 crore if this is implemented.

With more people in rural pockets getting infected compared to what was seen last year, the lenders to the grassroots have turned cautious in business expansion.

ICRA has estimated a sequential drop of 8-10 per cent in collections in April 2021 and the same may dip further if the infections continue rising and more restrictions are imposed across locations.

"We expect the economic impact on borrowers to worsen further with a number of states announcing complete lockdowns. This may affect the microfinance clients and the sector adversely," Sa-Dhan executive director P Satish said in a letter to the central bank, seeking "adequate and appropriate support."

Among the assistance sought are a special liquidity facility of at least Rs 15,000 crore through intermediaries such as the National Bank for Agriculture & Rural Development and Small Industries Development Bank of India.

"At least 40 per cent of funds under this may be earmarked for MFIs with portfolios below Rs 500 crore," Satish requested.

The letter has highlighted that the second targeted long term repo operation (TLTRO 2.0) last year announced to provide support to MFIs, failed to achieve the desired result. "Even large MFIs with good ratings were not able to receive any support under the funding window," it said.

The industry body has urged the central bank to monitor the flow of funds to the sector more closely so that their liquidity and funding challenges are addressed.