More than 50% of banks agree relief for micro lenders

Mayur Shetty | TNN

Mumbai: More than half of the bank to the microfinance The sector has extended a moratorium on its loans, according to an association of institutions that grant microcredit. While some () have been given a three-month break to pay their dues, others have received only a partial moratorium on principal repayment.

The willingness of to relax repayment rules is seen as an indication of their relative level of comfort in lending to this segment. One reason for this is that bank loans to MFIs qualify as priority sector loans. Also, much of microfinance lending is in the rural eastern part of the country that has more green zones.

According to MFIN President Manoj Nambiar, the industry has informed the RBI that it will require Rs 10 billion to provide emergency loans to help borrowers emerge from the impasse stemming from the blockade. In conjunction with regular loans, the financing requirement until September 2020 would be around Rs 25 billion. The RBI is aware of this and we are working with them and through all other agencies to ensure that this is managed, as it is of national importance, Nambiar said. He was speaking at a Post-Covid-19 Financial Inclusion Shifting Panorama online event hosted by Electronic Payment&Services.

Nambiar, who is MD for Arohan Financial Services, said the MFI industry deals with borrowers facing stress due to external events in providing emergency loans. In Kerala, when there was a devastating flood, which wiped out the livelihoods of micro-borrowers, the sector responded by granting emergency loans and a moratorium, which helped recover the customer segment, he said. He added that the blockade would open up a tremendous loan opportunity.

The sector, for its part, would respond by providing credit at lower rates and passing on the benefits of Sidbi and Nabard's cheaper refinancing to borrowers. According to Nambiar, the interest rate does not play a major factor, as access to finance and the ability to increase turnover is more important. “A vegetable vendor who borrows to buy vegetables worth Rs 100 and sells them for Rs 110, generates an annualized return of 2,500%. For them, borrowing 20% ​​is not a problem, he said. According to Nambiar, surveys have shown that two-thirds of borrowers still depend on informal lenders who charge 10% per month.