Assam MFI Bill may hit collections in short term

The Assam Micro Finance Institutions (Regulation of Money Lending) Bill 2020, which was recently passed by the Assam Assembly, is likely to create “some confusion” in the minds of borrowers and could affect collections in the region in the short term.

While the Bill is still not available in public domain, however, certain reports indicate that the key provisions of the Bill would include restriction on the deployment of collection agents, coercive collection practices and door-to-door collection; cap on the number of lenders per borrower as well as on the overall loan outstanding; and a minimum three-month loan repayment moratorium in case of natural adverse events.

The Bill will turn into a law once the Governor signs it and detailed guidelines would be issued by the Finance Secretariat thereafter.

Collection rate

According to Manoj Kumar Nambiar, Managing Director, Arohan Financial Services Ltd, the collection rate in the region has dipped for the sector as a whole in the last 2-3 days, and this could be an area of concern.

“Though we do not have a copy of the Bill, but whatever little we can make out based on what the local media has reported so far, most of the technical terms are as per RBI guidelines.

“The issue right now is there is a bit of confusion on the field as to what it will allow us to do and what not, and confused customers tend to get swayed by mischievous report and local activists may create more confusion. As a sector, in the last 2-3 days, collection rate has dipped which is an area of concern,” Nambiar told BusinessLine . The development comes at a time when the collection efficiency of the microfinance industry has been impacted due to the disruption caused by the Covid-19 pandemic.

While the overall collection efficiency has improved to around 80-85 per cent in November-December, however, it is estimated to be lower by around 5-6 percentage points in the eastern and north-eastern region.

It is to be noted that repayments in the region were hit by the dual impact of the pandemic and natural calamities, including flood and cyclone. The East and North-East accounted for 34 per cent of the total NBFC-MFI portfolio, which stood at ₹71,147 crore as on September 30, 2020.

“But we are hoping that better sense will prevail because the government has made it clear that its intention to help promote an orderly growth of the sector,” said Nambiar.

Impact on banks, NBFCs

According to a report on BFSI-Banks put out by Emkay, Assam has nearly 45 MFI lenders with a portfolio of ₹12,000 crore, of which, Bandhan contributes 55 per cent, followed by Arohan at 8 per cent, Ujjivan/Satin at 3 per cent each, and the balance by other small players.

Assam has seen sharp growth in the past few years, albeit on a small base. The average ticket size of loans in Assam is ₹47,263, which is the second highest after West Bengal.

While NBFC-MFIs are regulated institutions under the RBI regime, universal banks, SFBs and NBFCs do not have any RBI guidelines on microfinance lending. So, the regulations by Assam government could have an impact on them, industry experts pointed out.

“As of now, the RBI guidelines are applicable only to NBFC-MFIs and not to banks (including SFBs). However, we believe that most of the State guidelines, particularly regarding collections and moratorium, may be applicable to banks as well. Restrictions related to loan caps need to be followed voluntarily, if not mandated to banks, as concerns remain around multiple lenders and overleveraging in the MFI space in States such as West Bengal, Assam and Tamil Nadu, among others, have been raging, even attracting the RBI’s attention recently,” the report said.

However, a senior executive from the banking industry felt that the Bill may primarily seek to regulate NBFC-MFIs or other such entities that are in the MFI business, as it mainly talks about MFI lending and not much about micro lending or micro banking practised by banks.

Moreover, banks come under the supervision of the Banking Regulation Act, which is under the Central Parliament; hence, the State government guidelines may not impact its operations, he opined.

Bandhan Bank refused to comment on the impact of the proposed regulations on its business as it is in the silent period.

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