Very few takers among MFIs for RBI’s second loan moratorium scheme

Majority of the microfinance institutions (MFIs) have not approached their lenders to avail second tranche of moratorium scheme announced by the Reserve Bank of India (RBI) even nearly a month after the scheme was launched.

This is because MFIs are extending moratorium to their customers only on a case-to-case basis and hence do not feel the need to avail a moratorium extension from banks.

MFIs are small lending institutions that give tiny loans to low-income borrowers typically at an interest rate of 22-25 percent. They mainly source money from banks.

Till December, all MFIs including NBFCs and not-for-profits have a total loan outstanding of Rs 1,05,000 crore to 56 million borrowers.

“Business activities and repayments have slowly started again. MFIs are now focusing on giving emergency loans to their customers. Collections have improved over the past few weeks. Hence only very few MFIs have approached the banks for second tranche of loan moratorium,” said P Satish, executive director of Sa-dhan. The industry lobby has 148 MFIs as members out of which around 70 are NBFC-MFIs.

On 27 March, the RBI first announced the loan moratorium for a period three months (March-May) for all term loans extended by all lending institutions.

Following this, the second tranche of moratorium was announced on May 22 for June-August. This was taking into account the extension of nationwide lockdown by the government which had severely impacted business activities.

Under the scheme, the borrowers can avoid paying EMIs to banks without worrying that these loans turn  to NPAs (non-performing assets).

While all MFIs have availed the first moratorium, not many are keen to avail the facility for the second time. MFIs are particularly worried about the huge interest burden that will fall upon them while availing the scheme.

Also, to avail this scheme, MFIs need to convince their lenders about the cash flow situation. Banks extended the first moratorium to customers after delaying it for a few weeks and following the intervention of the RBI.  Banks are generally not keen to extend the second moratorium, bankers indicated.

Along with the moratorium, the RBI also announced a series of measures to ease the liquidity stress. These include permission to lending institutions to convert the accumulated interest on working capital facilities over the total

EMI deferment period of six months into a funded interest term loan, hiking the group exposure limit to 30 percent from 25 percent for enabling corporates to meet their funding requirements from banks, relaxing export credit rules and permission for Small Industries Development Bank of India (SIDBI) to roll over Rs 15,000 crore refinance beyond the earlier permitted 90 days.

Banks had initially refused to extend moratorium facility to NBFCs saying that financial intermediaries aren’t eligible for the moratorium scheme. However, banks showed willingness to lend after the RBI made it clear that NBFCs are eligible for the scheme.

MFIs had originally sought moratorium for one more month but the RBI extended this for another three months. Microlenders are also worried that a prolonged moratorium could spoil the credit culture of the borrowers. Since most borrowers of MFIs are from low-income segments, it is difficult to restore the credit culture once the payments go off the track.

In 2010, during the Andhra Pradesh microfinance crisis, the sector had witnessed a significant deterioration in credit culture. That time, local politicians had encouraged borrowers to stop repayments to MFIs.