Microfinance institutions (MFIs) have begun to see a rise in repayments as the lockdown eases. While MFIs expect to see a further improvement by the end of this month, many borrowers are also keen to take fresh loans.

“MFIs have started working in all areas except containment zones,” said P Satish, Executive Director, Sa-Dhan, an industry association. “In the beginning of May, we expected recoveries would be 12-14 per cent but, fortunately, by the month end, they were almost 18-20 per cent across various regions. Things are slowly looking up. Clients with cash are keen to repay and get additional lending.”

He expects further improvement in June and repayments to stabilise by the end of August as the moratorium on loans comes to an end.

According to industry players, many borrowers are also keen to pay back their loans and take fresh loans as they try to restart operations post the lockdown.

“Initially, there was demand for small emergency loans of about ₹5,000 to ₹6,000, but now there is some demand for credit. MFIs which have the liquidity are giving top-up loans,” said a player who did not wish to be named.

Rural trends

Rural areas are seeing better trends in repayments compared to semi-urban and urban areas. “The rabi harvest was reasonably good. Some sectors like dairy are still getting good local demand and income generation in rural areas. There was total disruption in income flows for urban MFI clients,” Satish noted.

However, according to Harsh Shrivastava, CEO, Microfinance Institution Network (MFIN), another industry association, recoveries are unlikely to get much better till September. “Right now, it is on a best effort basis across the country. We should not expect a very good recovery. It is time to maintain a good connection with borrowers so that when the time comes, they will pay willingly,” he said.

MFI players have also reported that while the moratorium on term loans is available to all borrowers, many have chosen not to take it, especially when it was extended post May 31.

“Whoever has the repayment capacity was keen to pay back the money. We have also been making borrowers aware of the interest component,” said an industry source.

A recent report by ICICI Securities noted that despite the moratorium, with resumption in operations, customers are proactively clearing their dues with nearly 15 per cent recoveries in MFI loans in May, and recovery rates in rural areas being 30-50 per cent better than in urban areas and metros.

“Collections from almost negligible levels have witnessed encouraging traction and will gradually pick up pace with the expectation of 50-70 per cent customers starting to honour their obligation by the end of June,” it said, adding that collections may touch 85 per cent by September.