Home >Companies >News >Pent-up demand to aid micro lenders: Northern Arc CEO

Northern Arc Capital, a lender focused on last-mile financing, expects demand for micro loans, especially in the MSME sector, to rebound after the second covid wave, managing director and chief executive Kshama Fernandes said.

Fernandes added that the recent policy direction by the central bank where it has proposed to do away with the current interest cap for microfinance institutions, if implemented, will create a level playing field and help boost the sector as it emerges from the impact of the pandemic.

Since the last-year-and-a-half has been rather subdued, there’s a lot of pent-up demand, Fernandes said.

“We will see all of that demand coming back, particularly in the MSME microfinance space, you will see a lot more demand coming up. I do think that supply chain is an important area for growth, and we might want to explore that as well. I think the opportunity in our existing businesses will also be a very interesting opportunity. So, we will continue to sort of build on that as well," said Fernandes.

She added that collections are seeing a strong recovery as most parts of the country are unlocking now.

“We are seeing collections coming back as well. The recovery of collections this time, compared to the first wave, is likely to be better. There’s less confusion this time around as last time when you had a moratorium," she said.

Northern Arc Capital offers financing solutions to small- and mid-sized corporates as well as to lenders operating in microfinance, affordable housing finance, small finance banks, commercial vehicle finance, agri finance and small business loans.

It also lends directly to end-customers through a co-lending model. Northern Arc provides loans and other structured debt products, including guarantees, to its clients. It also facilitates securitization transactions for its clients and generally invests in subordinated tranches.

The lender has seen its assets under management (AUM) grow by 20% in fiscal 2021. Its AUM currently stands at 5,200 crore. The lender has a capital adequacy of around 29%.

Northern Arc Capital is backed by private equity investors such as IIFL Special Opportunities Fund, Leapfrog, Affirma Capital, Eight Roads, Accion and Japan’s multinational bank Sumitomo Mitsui Banking Corporation.

Fernandes welcomed the recent Reserve Bank of India (RBI) proposal to remove interest caps on microfinance institutions. MFIs may get freedom to set interest rates guided by a board-approved policy, under the proposal to review the regulatory framework governing them, published recently. The proposal, if implemented, will end the existing regulatory cap on MFI interest rates.

“It provides a level playing field for a very important category of financial institutions that plays a very big role in the whole financial inclusion story, which is very core and which is very important for India. So, I think that direction will only result in a positive outcome for the microfinance sector. And more importantly, a very positive outcome for access to finance in India," she said.

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