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Business News/ News / India/  Localised lockdowns threaten to disrupt microfinance collections

Localised lockdowns threaten to disrupt microfinance collections

  • Maharashtra is among the top five states in terms of microfinance loans, with assets under management of around Rs16,700 crore as of December, accounting for 7% of all such loans

MFIs' collection efficiency has stalled at 90-94% over the past few months compared with the pre-pandemic level of 98-99%. (Photo: Mint)

MUMBAI: The imposition of state-specific lockdowns to contain the spread of covid-19 could hit collections of microfinance institutions (MFIs).

Krishnan Sitaraman, senior director and deputy chief ratings officer at Crisil, said the sector’s collection efficiency has stalled at 90-94% over the past few months compared with the pre-pandemic level of 98-99%.

“These mini-lockdowns can restrict improvement in the coming months," he said.

In a relief, however, micro lenders have been allowed to continue operations in Maharashtra unlike the time during the nationwide lockdown last fiscal.

Maharashtra, seeing a significant rise in coronavirus cases, has announced a mini lockdown through 30 April, while several other states have also declared night curfews and weekend lockdowns.

According Crisil, Maharashtra is among the top five states in terms of microfinance loans, with assets under management of around Rs16,700 crore as of December, accounting for 7% of all such loans. Meanwhile, collection efficiency in Maharashtra has been relatively lower at 85-90% even before the latest curbs because of previous extended lockdowns and trails the all-India average of 90-94% as of December, it said.

“However, unlike last fiscal, the disruption in economic activity due to the mini-lockdown is expected to be relatively moderate this fiscal. Given that many borrowers of MFIs cater to essential services that continues to operate as usual, their cash flows could be curbed to some extent," it said.

Crisil pointed out that while non-banking financial company (NBFC)-MFIs are better prepared to deal with the situation because of their prior experience with lockdowns, their ability to manage asset quality and maintain healthy collections will bear watching.

The exposure of Crisil-rated NBFC-MFIs to Maharashtra ranges from 5% to 28% of their total loan book, and accounts for over 65% of the state's MFI assets under management.

“Crisil Ratings is monitoring the situation and will take necessary action based on developments and their impact on collections, earnings profile and capitalisation metrics­," it said

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ABOUT THE AUTHOR

Shayan Ghosh

Shayan Ghosh is a national editor at Mint reporting on traditional banks and shadow banks. He has over 12 years of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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