No legacy, they say, is as rich as honesty. Perhaps, India’s micro lenders can vouch for this. With an outstanding loan portfolio of ₹2.2 lakh crore, the microfinance industry caters to a vast majority of the population in the informal sector which includes daily-wagers, small businesses, kirana shops and agricultural workers. But the recovery rate of more than 98 per cent can put even corporate borrowers to shame.
The pandemic-induced lockdown has disrupted the disbursement and recovery process of the industry, which predominantly depends on cash settlements, field visits and group meetings. However, microfinance companies are confident that the industry, which is known for its resilience, will bounce back soon after the economic activities are started.
“I have been in the sector for the last 18-20 years and have seen several cycles of ups and downs. My personal belief is that small businesses have good strength to bounce back. All they need is a few thousand rupees to make them stand again,” Vivek Tiwari, MD & CEO of SATYA MicroCapital said, adding: “once the disbursement is continued the sector will be normalised in 4-6 months.”
The granular nature of the portfolio, small size of loans, high level of customer connect, balanced mix of urban and rural clients and a very strong credit discipline of the micro borrowers are some of the major advantages for the sector.
RBI moratorium
The RBI’s three-month loan moratorium came as a major reprieve for the small borrowers, whose livelihood was thrown out of gear by the sudden lockdown. However, with the relaxation on lockdown guidelines in many parts of the country, microfinance lenders say that majority of the borrowers have started repayment instead of taking the second moratorium.
“Finance always sits on the bedrock of credit culture. Any disruption in credit culture is not good for the industry,” SV Raja Vaidyanathan, MD & CEO of Asirvad Microfinance said, adding: “but the blessing in disguise is that, when RBI created moratorium, it said that moratorium interest will be charged from day one.”
Asirvad is one of the largest microfinance companies in India with an assets under management (AUM) of ₹5,500 crore as on March 2020.
“We are in touch with our clients to know their well-being and to understand their repayment capacity. Most of our clients, barring a small percentage, said they will start repaying soon after the first moratorium is over,” Vaidyanathan added.
Chennai-based Dvara KGFS also said while the company is seeing some dip in the customer household income due to slowdown of economic activities, most of its customers have communicated their willingness to repay shortly after the lock down is lifted.
“People are realising that the moratorium has a strong cost associated with it, and we therefore are seeing upward of 20 per cent collection through our customers visiting branches or digital modes recently,” Joby CO, CEO of Dvara KGFS, said.
Dvara KGFS, which has opened its branches towards the end of April, said it has been providing Aadhaar-enabled banking facilities to its customers.
“Through this, we are able to help close to 10,000 customers withdraw around ₹2 crore of direct benefit transfer received from the government in their SB account,” Joby said.
Positive outlook
In its recent analysis of 30 microfinance institutions (MFIs) and small finance banks (SFBs), rating agency ICRA said most of the entities have more than 50 per cent of their portfolio in the green and orange zones.
“The turnaround is expected to be faster and collections higher than the red zone thereby providing some relief to MFIs,” it said.
“After initial few days, rural areas were not that much affected by the lockdown, because it was harvest season and mostly harvesting was happening,” K Paul Thomas, MD & CEO of Thrissur-based ESAF Small Finance Bank said, adding, “so initially there were some cash flow issues but there is no asset loss due to this crisis.”
He also said that officials of ESAF have been in touch with their clients over the past few weeks and most of them have expressed their willingness to repay their outstanding within two weeks of resuming their business.
“It will take some time to recover but there will not be much default. These are all micro entrepreneurs or self-employed people and their resilience level is very high,” Thomas added.