Lifting of coronavirus lockdown restrictions helped microfinance institutions in India to improve their collection. In April Collections had plunged near to zero and rebounded to 70-75 percent in July. Microfinance institutions granted moratorium to its borrowers due to the pandemic and it had wallowed the collections in single digit in May but rebounded to 50-55 percent in June and continues to improve.
MFI in rural and semi-urban areas have reported better collections because the lifting of the lockdown restrictions and resumption of local economic activity was faster in those areas, where MFI has a greater presence. Karnataka and Bihar, states with the largest microfinance presence, have managed to control the spread of the afflictions in the rural areas so far and reported better collections. Tamil Nadu and Maharashtra were facing the brunt of the pandemic and observing more stringent, localized lockdowns so it reported less collection for the period. Most MFIs received moratorium from banks and hence had low debt repayments, while disbursements were negligible.
Most of the MFIs in India facing challenges due to the pandemic. So, to deal with the current issues, they have created a COVID-19 provision in addition to the standard provisions in the last quarter of 2020 and the first quarter of this fiscal as well. The loan book on March 2020 shows the special provision accounts 2.5 to 3%, where it was shown 3 to 13% during the time of demonetization.
MFIs are expected to concentrate on raising additional equity capital over the near to medium term to control potential pandemic-related credit costs, Capital worth Rs.2,000 crore also raised by MFI under the targeted long-term repo operations scheme by RBI and partial credit guarantee scheme by the government of India. In fiscal 2017 and 2018, MFIs raised equity aggregating over Rs 4,000 crore after demonetization. According to credit rating agency Crisil’s report, Given the momentum in collections and outflows largely limited to operating expenses, liquidity levels have improved over April.
Crisil said it will focus on three areas
in the road ahead: liquidity adequacy to cover upcoming debt obligations, equity-raising
plans to mitigate the impact on capitalization if any, and operating
expenditure and collection efficiency over the next few months after the
moratorium is lifted
