With rural areas also impacted by the second wave of the Covid-19 pandemic, microfinance institutions (MFI) have been witnessing a drop in collections and expect further uncertainty but are hopeful that the situation may stabilise by the end of June.

“The situation was normal at least till the third week of April this year unlike April and May 2020 when there was a complete lockdown and no collections. Collections have now slowed down and they are only up to 20 per cent to 30 per cent of normal levels,” said P Satish, Executive Director of MFI association SaDhan.

He pointed out that the lockdown this year has also led to some restrictions in mobility while meeting customers is often difficult due to local containment zones. A large number of MFI employees also being impacted by Covid. Further, rural areas too have been badly affected by infections this time, Satish said.

While segments like dairy and pure agriculture have not been impacted by the Covid surge this time as well. However, there is some impact on sectors where perishable items like vegetables are involved and are unable to reach the market.

“The expectation is that if the pandemic reaches the peak by end May or beginning of June and starts tapering off, things can still be managed by mid and late June or early July,” he told BusinessLine .

SaDhan has also recently sent a representation to the Reserve Bank of India for further relief measures to the MFI sector including an emergency credit line.

Uncertainty on asset quality

Rating agency ICRA too had pointed out that the microfinance industry continues to witness uncertainty on asset quality amid the expected drop in collections, given the rapidly rising Covid-19 infections since March 2021.

“ICRA estimates a sequential drop of eight per cent to 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,” Sachin Sachdeva, Vice President and Sector Head, Financial Sector Ratings, ICRA had said in the recent note.

PN Vasudevan, Managing Director and CEO, Equitas Small Finance Bank said that increase in localised and regional lockdowns may impact collection for the month of May 2021.

The bank had a collection efficiency of 105.16 per cent and billing efficiency of 84.68 per cent for the month of April.

“April 2021 collections remained at a decent level since the first 15 days were broadly normal across the nation,” Vasudevan said.