MFI operations come to halt in lockdown districts; biz severely impacted

Estimates suggest the locked down districts account for close to 50% of microfinance business in India; banks and SFBs could also be impacted

The lockdown to contain the spread of Coronavirus has put the microfinance sector on the edge.

Both collection and disbursements of loans in 75 districts across India under lockdown is temporarily suspended, according to Manoj Nambiar, chairman, MFIN (Microfinance Institutions Network), the representative body of MFIs.

Rough estimates suggest, the districts in which lockdown has been imposed, account for close to 50 per cent of microfinance business in India, according to Jagadish Ramadugu, MD and CEO, Vaya, a microfinance firm.

The gross loan portfolio of the microfinance industry at the end of  December 2019 was Rs 2.11 trillion. Every month close to 10 per cent of portfolio gets repaid, according to Nambiar. This means that a large part of Rs 20,000-22,000 crore of monthly collection by the industry, including those by banks, would be disrupted.

Microfinance works on a high touch model, and most of the repayments and collections are done in groups of nine to ten people. The collections are mostly done on a weekly basis.

At stake also is the portfolio of several lenders, including Bandhan Bank. At the end of December 2019, the share of banks in microlending business was highest at 40 per cent. For example, close to 60 per cent of Bandhan Bank’s portfolio is from micro finance. C S Ghosh, MD and CEO of the bank could not be reached for comments.

Also at risk is the portfolio of small finance banks, which have close 90 per cent of portfolio concentrated in the microfinance segment.

“There has been a lot of uncertainty in the sector, but due the lockdown all MFI operations have been suspended in Kerala,” according to K Paul Thomas, chairman and managing director of ESAF Small Finance Bank, based in Kerala. The state has been facing Corona outbreak since the last two weeks, and starting today MFI operations have been halted in the state.

 Many urban-centric MFIs which had been focusing on technology for increasing efficiency in the MFI sector too are affected by the crisis. For example, although Vaya, a tech-focused MFI,  has asked all its backend employees to work from home,  made possible on account of a cloud-based application, at the field level the business has been severely hit. Even though a part of collection is cashless through a handheld device, it requires physical presence of field officers at the spot.

“Till yesterday, the collection was more or less normal. However, post lockdown, all the collection activities have been suspended. This is a very difficult moment for the industry, and we do not know how long will it last,” said Ramadugu, MD and CEO, Vaya.

The microfinance sector has been witnessing turbulent times since the last few months with rising delinquencies due to protests against CAA (Citizenship Amendment Act). According to data from CRIF MicroLend for Q3 of this financial year, the portfolio at risk (PAR) for the industry for repayment between 31 and 180 days stood at 1.5 per cent, which was 50 per cent higher on a year-on-year basis.