Microfinance players expect loan repayments to start soon

No legacy, they say, is as rich as honesty. Perhaps, India’s micro lenders can vouch for this. With an outstanding loan portfolio of ₹2.2 lakh crore, the microfinance industry caters to a vast majority of the population in the informal sector which includes daily-wagers, small businesses, kirana shops and agricultural workers. But the recovery rate of more than 98 per cent can put even corporate borrowers to shame.

The pandemic-induced lockdown has disrupted the disbursement and recovery process of the industry, which predominantly depends on cash settlements, field visits and group meetings. However, microfinance companies are confident that the industry, which is known for its resilience, will bounce back soon after the economic activities are started.
“I have been in the sector for the last 18-20 years and have seen several cycles of ups and downs. My personal belief is that small businesses have good strength to bounce back. All they need is a few thousand rupees to make them stand again,” Vivek Tiwari, MD & CEO of SATYA MicroCapital said, adding: “once the disbursement is continued the sector will be normalised in 4-6 months.”

The granular nature of the portfolio, small size of loans, high level of customer connect, balanced mix of urban and rural clients and a very strong credit discipline of the micro borrowers are some of the major advantages for the sector.

The RBI’s three-month loan moratorium came as a major reprieve for the small borrowers, whose livelihood was thrown out of gear by the sudden lockdown. However, with the relaxation on lockdown guidelines in many parts of the country, microfinance lenders say that majority of the borrowers have started repayment instead of taking the second moratorium.

“Finance always sits on the bedrock of credit culture. Any disruption in credit culture is not good for the industry,” SV Raja Vaidyanathan, MD & CEO of Asirvad Microfinance said, adding: “but the blessing in disguise is that, when RBI created moratorium, it said that moratorium interest will be charged from day one.”

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