The microfinance industry is likely to bounce back to pre-Covid levels both in terms of disbursements and collection efficiency by the third quarter of this fiscal.

Manoj Kumar Nambiar, Chairperson, MFIN and MD of Arohan Financial Services Ltd, said that disbursements in July have been nearly 50 per cent of that registered during a normal month before the Covid-19. The industry should be able to sustain the momentum and build upon it in August and take disbursements up to nearly 85-90 per cent registered in a normal month.

“April was a lockdown month so nothing really moved. In the last week of April the unlocking started but there were hardly any disbursements. In May, the formal process of unlocking started and we could get most of our staff back and more than 90 per cent of our branches open so we had three full weeks of activity,” Nambiar told BusinessLine .

He added, “The sector reported 35-40 per cent collection efficiency in May and token disbursements also started in the second half of May. There was a great demand for credit as things were opening up and people had spent a large part of their savings and they needed help in restarting their livelihood activities.”

Collection efficiency has been improving for the sector and was at about 50-55 per cent in June while disbursements were close to 30 per cent of that registered in a normal month.

Positive outlook

While July started off on a great note both in terms of collections and disbursements and the industry was hopeful of improving collection efficiency to close to 75 per cent, however, the floods in several parts of the country including Bihar and Assam and the sporadic lockdowns announced in various states including West Bengal, Assam, Odisha, Bihar impacted the momentum.

“We may not be able to achieve collection efficiency of 70-75 per cent in July, which the sector was aspiring to, but I am sure it will be better than June. Disbursements in July have reached atleast 50 per cent of that registered in a normal month before the pandemic. We were hoping to build on that momentum in August and take it up to 85-90 per cent so that when the moratorium comes to an end in September then it will be a smoother ride,” he said.

There has been a steady demand for credit among customers in the bottom of the pyramid and the MFI sector has responded by giving emergency loans to existing customers with a good track record to help them restart their activity, he added.

However, it is important that the industry manages the navigation from August to September “very carefully”.

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