Sa-Dhan, a prominent industry body of microfinance institutions (MFIs), has written a letter to Union Finance minister, Nirmala Sitharaman seeking urgent liquidity support using the Reserve Bank of India (RBI) liquidity windows and by way of a partial credit guarantee support from the Government.
In a letter to the FM, Sa-Dhan said the second wave of COVID pandemic has begun hurting the operations of microlenders. MFIs are companies which borrow from banks and on-lend to small borrowers at a margin of 10 percent -12 percent. The interest rate typically ranges from 20 percent -24 percent.
Sa-Dhan said the RBI has already extended the Special Liquidity Facility to NABARD, SIDBI and NHB to the tune of Rs 25,000 crore , Rs 15,000 crore and Rs 10,000 crore, respectively in the current financial year. "A part of that facility under NABARD and SIDBI - to the extent of Rs 10,000 crore and Rs 7,000 crore, respectively should be allocated for the microfinance sector, and as it was done last year a part of that funding should be earmarked for small and medium MFIs," the industry body said.
Secondly, Sa-Dhan requested the government to extend a partial credit guarantee to banks to the extent of Rs 10,000 crore of their lending to MFIs, with Rs 2,000 crore of that being earmarked for small and medium MFIs. "An emergency credit line facility in the form of a pre-approved sanction limit of up to 25 percent of the loan outstanding may be extended to MFIs by all banks," Sa-Dhan said.
There is a need for reduction in the interest rates charged on loans to MFIs by banks as also DFIs like NABARD, SIDBI, MUDRA so that the borrowers can be lent at lower interest rates, Sa-Dhan said.
"NABARD, SIDBI and MUDRA should liberalise their norms and conditions of financing/refinancing in view of the pandemic to ensure a greater funds flow to MFIs. They can adopt only grading norms instead of rating to assess the MFIs with portfolio below Rs 200 crores. In keeping with the current difficulties, even institutions with B- rating should be considered for funding," Sa-Dhan said.
Further, India Microfinance Equity Fund (IMEF) under MUDRA/SIDBI should be augmented with an additional Rs 1,000 crore so that more MFIs can receive equity and quasi-equity to leverage their net worth and increase their credit flow, Sa-Dhan letter said. The sanction process under IMEF should be simplified and expedited, it added.
The industry body noted that commercial banks, especially public sector banks, are flush with liquidity. However, despite the pandemic, the priority sector benefit and a more than normal returns, banks were tight fisted in lending to the microfinance sector in the last financial year. There is a need for increased credit flow from banks-public sector and private sector-to the MFIs in view of the recurrence of the pandemic, it said.
The letter also makes a pitch to ease the credit rating process in the wake of second wave of the pandemic. "There is a need for SEBI and RBI to ensure that credit rating agencies factor in the ground realities of an abnormal year while assessing and rating the institutions," said Sa-Dhan.
Finally, it has also sought the extension of liberal Credit-Life policies to MFIs by insurance companies from the insurance regulator, without too many restrictive clauses. IRDAI should also ensure that insurance companies do not profiteer by jacking up the premia from microfinance sector, the letter said.
Early this week, NBFCs moved Reserve Bank of India (RBI) seeking restructuring of loans for a second time and also seeking fresh liquidity support for on-lending to smaller firms.
Finance Industry Development Council (FIDC) – a representative body cum Self-Regulatory Organisation for Non-Banking Finance Companies wrote to the RBI seeking fresh relief measures.
Also, FIDC has sought restructuring of loans to small NBFCs by banks and FIs (asset size of less than Rs 500 crore) and liquidity support to NBFCs for on-lending to MSMEs.