The microfinance industry, which has been inching towards pre-Covid levels – both in terms of disbursements as well as quality of portfolio – now seems a little wary of the impact of the sudden surge in Covid-19 cases on its collection efficiency.

Any impact on collections may also hurt growth in disbursements, as fresh loans to existing customers will only be sanctioned as and when they foreclose the previous loan.

This apart, disbursements to new customers may also be impacted if field operations are affected due to increase in restrictions in certain regions, including Maharashtra, Tamil Nadu, and Odisha. This would effectively mean that overall credit offtake to the sector might be impacted.

No direct impact

While industry experts do not expect any immediate or direct impact or decline in collections unless there is a nationwide lockdown, they are worried that the restrictions being put in place may impact livelihood activities and, in turn, repayments.

According to Sachin Sachdeva, Vice-President and Sector Head, Financial Sector Ratings, ICRA, the restrictions being put in place in several States/cities to curb Covid-19 infections may affect the improvement in collections, which the microfinance industry has been witnessing for the last few months.

“Increase in restrictions and/or a longer lockdown is a cause of concern for the industry as it would affect the field activity and thereby affect collections. In addition, the disruptions caused in economic activity by such restrictions, will adversely impact the cash flows of the borrowers and, hence, the collection efficiency gains witnessed in past few months may start disappearing,” Sachdeva told BusinessLine.

For the quarter ended December 31, 2020, the portfolio quality was seen moving in the range of around 88-92 per cent for the industry as a whole despite geographical variation, as per the 36th issue of Micrometer.

A majority of the microfinance institutions have reported more than 90 per cent recovery and some of them have met their recovery target as on March 2021, said P Satish, Executive Director of Sa-Dhan, an RBI-recognised self-regulatory organisation for MFIs.

“The only thing we need to see is whether this new lockdown will affect small businesses. The complete lockdown during weekends are likely to impact small businesses and street vendors who are typically MFI customers.

“We only hope this will not last too long. Last time this segment could recoup in a quick way so we are positive,” he said, and added that the industry was watchful but optimistic of improvement in recovery.

Though the collection efficiency for the industry as a whole has been improving on a month-on-month basis, the situation is still very fluid as nobody knows what will happen if cases surge further, said Alok Misra, CEO and Director, MFIN (Microfinance Institutions Network).

If the process of vaccination is accelerated then it would give the industry a “good buffer”.

“Our operations are going on as usual as of now, since MFIs are categorised as essential services. We have not observed any adverse impact on our collection efficiency at all,” said HP Singh, CMD, Satin Creditcare Network Ltd.

Improvement in funding

From the funding side, things have been improving and liquidity is not an issue. “Since things have not gone into complete lockdown, the impact (on disbursements) will be lower, but if there is longer lockdown or increase in restrictions, then there could be an impact,” pointed out Sachdeva.

Disbursements for the industry as a whole during Q3 FY21 were around 96 per cent of the same period last year.

According to Manoj Kumar Nambiar, Managing Director, Arohan Financial Services, customers understand the importance of repayments as it directly impacts their ability to take credit.

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