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Micro lenders seek government support in bank loans

Despite the pandemic, priority sector benefit and a more than normal returns, banks were tight-fisted in lending to microfinance sector in the last financial year, according to P. Satish, the executive director of Sa-Dhan, an industry body comprising 225 microfinance institutions across India.Premium
Despite the pandemic, priority sector benefit and a more than normal returns, banks were tight-fisted in lending to microfinance sector in the last financial year, according to P. Satish, the executive director of Sa-Dhan, an industry body comprising 225 microfinance institutions across India.

  • MFIs have written to the finance minister requesting a partial credit guarantee of Rs10,000 crore to nudge banks to lend to them

India’s microfinance institutions (MFIs) have written to finance minister Nirmala Sitharaman requesting a partial credit guarantee of Rs10,000 crore for banks that would nudge them to lend.

“Commercial banks, especially public sector banks, are flush with liquidity. However, despite the pandemic, the priority sector benefit and a more than normal returns, banks were tight-fisted in lending to the microfinance sector in the last financial year," said P. Satish, executive director, Sa-Dhan, an industry body comprising 225 microfinance institutions across India.

The industry body also sought an emergency credit line in the form of a pre-approved limit of up to 25% of the loan outstanding form banks. It said that the Reserve Bank of India (RBI) has already extended the special liquidity facility to the National Bank for Agriculture and Rural Development (Nabard), Small Industries Development Bank of India (Sidbi) and the National Housing Bank (NHB) of Rs25,000 crore, Rs15,000 crore and Rs10,000 crore, respectively, in the current financial year.

“A part of that facility under Nabard and Sidbi—to the extent of Rs10,000 crore and 7,000 crore, respectively—should be allocated for the microfinance sector," Satish said.

As per Bharat Microfinance Report 2020, 202 MFIs operate in 28 states, 5 Union territories and 593 districts in India with branch network of 19,073 and employ 152,000 people. As of 31 December 2020, the loan outstanding of MFIs (excluding banks and small finance banks) stood at Rs82,564 crore.

“Though final data for 2020-21 is yet to be consolidated, on the basis of information already available we can confidently state that MFIs braved the adverse conditions and served their borrowers well with good financial performance, except in certain geographies. During the pandemic, MFIs also provided food and ration support, hygiene product support like masks, gloves and sanitizers, health advisories and medical services to their borrowers," Satish’s letter added.

Seeking relaxations in credit rating, Satish said that these agencies need to be more flexible in factoring in the distress caused to microfinance sector and its borrowers due to the pandemic and should not persist with applying same yardsticks as in a normal year.

“There is a need for Securities and Exchange Board of India (Sebi) and RBI to ensure that credit rating agencies factor in the ground realities of an abnormal year while assessing and rating the institutions," he said.

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