Assam MFI Bill, socio-political factors hit local microlenders, says report

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Microlenders in Assam are feeling the pinch of a local law that seeks to restrict the operations of microfinance institutions (MFIs) and also from the adverse local socio-political factors, credit bureau CRIF High Mark said on 17 June in a release.

MFIs are companies which lend to low-income groups and mainly source money from commercial banks to do business. These firms typically lend at an interest rate of 21-24 percent to borrowers.

According to the CRIF report, stress has been building up in MFI portfolios in Assam. This is evident by a sharp rise in loans that are overdue over six months. This portion rose to 13.6 percent in March 2021 from 6.5 percent in December 2020, the note said.

CRIF attributed stress build up to socio - political factors affecting the region in the December quarter of FY20 and the recent Microfinance Bill, 2020, which have largely impacted non-bank MFIs.

The Assam Microfinance Institutions (Regulation of Moneylending) Bill, 2020, drafted by the state government, has raised concerns among the local moneylenders. The Bill seeks to restrict MFI collection only to public places and mandatory registration. MFIs fear these restrictions will hurt their business.

The state government, however, has maintained that the Bill is intended to create an effective mechanism to regulate MFIs, including the NBFC-MFIs that are regulated by the Reserve Bank of India (RBI). Along with the Bill, the call from local politicians for loan waivers too have resulted in concerns among the local lenders, including Bandhan Bank, which has the largest exposure in the state.

Delinquency rates are high in other states as well. The 30 dpd WHAT IS DPD? delinquency remains high in West Bengal, Assam and Maharashtra, CRIF said.

The agency, however, said overall 1-30 days delinquency ratio, however, reduced to 5.1 percent in March 2021, as compared to 8.7 percent in December 2020. The 30 days+ portfolio at risk (PAR) stood at 9.7 percent and 90 days+ PAR was 4.4 percent in March 2021, as compared to 14.5 percent and 3.8 percent, respectively, in December 2020.

Disbursements in the quarter ended March 2021 recovered to year-ago levels after shrinking in the first three quarters of FY21, CRIF said. Overall disbursements have grown by around 1 percent year-on-year, while disbursements of loans of ticket size over Rs 40,000 have grown by 23 percent.

Microfinance industry demonstrated strong resilience and recovered in the September quarter after muted business in Q1 FY21, said Vipul Jain, Head of Products, CRIF High Mark.

“Loan disbursements in Q3 and Q4 FY 20 - 21 were similar to previous year’s respective quarters. Delinquency was higher in Q3 and Q4 of FY 20 - 21 compared to pre Covid levels, we hope to see these numbers move back to their historic levels in the coming quarters,” Jain said.