Microfinance institutions (MFIs), companies which give small loans to low-income borrowers, have pitched for additional government support in the Union Budget 2022 to tide over the pandemic-induced impact.
Among the demands made by the industry include extension of credit guarantee scheme for MFIs, permitting Nabard and Sidbi to issue tax free bonds to raise funds to help funds to provide debt/ equity to MFIs and setting up of Rs 1,000-crore microfinance development fund, among others.
MFIs’ operations were severely hit during the first wave of Covid-19 pandemic as lockdowns affected collections. Also, the repayment ability of the borrowers were affected following loss of livelihoods in many states. But, the impact was much less severe in the second wave and during the most recent Omicron spread as there are no lockdowns yet, said P Satish, Executive Director of Sa-Dhan, a industry body of microlenders. The industry body is in the process of seeking inputs from the ground, Satish said.
However, the adverse market conditions in the last two years have affected the operations of smaller MFIs necessitating more support measures from the central government, said Satish.
Sa-Dhan has demanded that five-year tax free bonds will help smaller MFIs to raise debt/equity. About 30 percent of these funds can be in the form of equity and rest being debt, the body has suggested.
While institutions will be able leverage equity for the further development of the sector, social Bonds will have high multiplier effect if fiscal incentive is provided to ensure higher individual and corporate participation, Sa-Dhan said.
Seeking the extension of Credit Guarantee Scheme for MFIs for FY 2022-23, Sa-Dhan has requested that at least 75 percent of the funds can be earmarked for Small and Mid-size MFIs.
Further, due to the pandemic, capital of the smaller MFIs has been impacted due to which it will be difficult to mobilize additional/new investment, the industry body said, seeking support with subordinated debt with tenure of five to seven years. Subordinated debt is a debt owed to an unsecured creditor.
Also, the industry has requested the government to relax sections 194N and 269D of IT Act which, according to the body, has been restrictive factors for the day-to-day operations of the Cooperative MFIs. These acts pertain to tax implications on cash withdrawals and acquisition of immovable properties. “We request the Government to relax these norms for Cooperative MFIs and to set up a panel to work on further modifications,” said the industry body in its request to the Government.
Microfinance industry has showed signs of recovery in the recent past after two rounds of pandemic. According to data from MFIN India, another microlending industry body, microfinance loan disbursals during the second quarter of financial year 21-22 improved significantly to Rs 64,899 crore as compared to same quarter of last financial year when it was Rs 31,261 crore. Similarly, the number of loans disbursed during second quarter of 21-22 increased to 1.85 crore from 88 lakhs in second quarter of 20-21, signifying progress towards normal operations, the data showed.
Gross Loan Portfolio of NBFC-MFIs stood at Rs 81,408 crore as on September 30, 2021, marking a 15.45 percent year-on-year rise as compared to Rs 70,512 crore as on September 30, 2020.
As on 30 September 2021, 13 banks hold the largest share of portfolio in micro-credit with total loan outstanding of Rs 1,01,209 crore, which is 41.52 percent of total micro-credit industry. NBFC-MFIs are second largest provider of micro-credit with a loan amount outstanding of Rs 82,749 crore, accounting for 33.95 percent to total industry portfolio.
Small finance banks have a total loan amount outstanding of Rs 40,534 crore with total share of 16.63 percent. NBFCs account for another 6.85 percent and other MFIs account for 1.05 percent of the industry, the body said.
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