The third wave of Covid-19 pandemic, caused by the Omicron variant, may not have any significant impact on the Indian microfinance industry, which had started witnessing a steady improvement in collection efficiency and growth in disbursements, backed by improved demand from Q3 of the current fiscal.

According to industry experts, there is not likely to be much of an impact on repayment by customers, as there were no widespread lockdowns that cause disruption to businesses.

“As most of the MFI staff and a large part of borrowers are vaccinated and the Omicron variant in the third wave is assessed as milder in health terms, the impact has not been negative. Though some staff are contracting the virus, the effect is mild and the recovery faster.

“In addition, there have been no wholesale and stringent lockdowns, so the impact on collections is low. The second wave was disastrous in terms of human costs. As such it had an impact on collections, but that too got eased by the second quarter,” P Satish, Executive Director, Sa-Dhan, told BusinessLine.

Collection efficiency

The microfinance industry, which had been reeling under pressure due to a decline in collection efficiency and lower disbursements, on the back of Covid-induced slowdown, was expecting to be back on track by Q4 FY22. Disbursements, which had started witnessing traction in Q3, were expected to gather pace by the fourth quarter of this fiscal, backed by a steady demand for credit and improved recovery.

For the quarter ended September 30, 2021, NBFC-MFIs disbursed close to ₹19,672 crore through 54.3 lakh accounts. This is almost 141 per cent higher than the disbursements of ₹8,155 crore made in Q2 FY21, when both collections and disbursements had come to a grinding halt due to Covid-induced lockdowns across the country. The disbursements during Q2 of this fiscal were marginally up by around five per cent, compared to the pre Covid period of Q2 FY20.

The average loan amount disbursed per account during Q2 FY22 was ₹36,251, which is an increase of around 16 per cent in comparison to same quarter of last financial year, according to the latest Micrometer report by MFIN.

The total microfinance loan disbursals during Q2 of this fiscal improved significantly to ₹64,899 crore, compared to ₹31,261 crore in the same period last year. The number of loans disbursed during the quarter also increased to 185 lakh against 88 lakh last year.

According to Manoj Kumar Nambiar, Managing Director, Arohan, things are likely to be on track if there are no further disruptions.

“The current wave seems to be more of urban- and semi-urban phenomenon. Even if people get infected it has been a 3-5-day affair, so there is not much of a disruption. So, we expect the momentum of Q3 to continue in the fourth quarter. If there are no further disruptions then the industry should see itself coming back to where it was in the pre-Covid days in the next three-to-six months,” said Nambiar.

As on September 30, 2021, the industry served 5.65 crore unique borrowers through 10.52 crore loan accounts. Nearly 65 per cent portfolio is concentrated in east, north-east and south regions.

The top 10 States constitute close to 82 per cent in terms of GLP (gross loan portfolio). West Bengal retains its spot as the largest State in terms of portfolio outstanding, followed by Tamil Nadu and Bihar. Among the top 10 States, West Bengal has the highest average loan outstanding per unique borrower of ₹51,648, followed by Assam at ₹46,300, according to the MFIN data.

A recent report by ICRA suggested that the asset quality metrics weakened quite sharply during the first half of this fiscal because of the localised lockdowns imposed by various States and UTs on account of the second wave. This impacted borrowers’ cash flows and, hence, the collection efficiency.

Since there has not been any major lockdowns announced, leading to a possible shrinkage in income levels, the disruption on businesses, if any, is likely to be mild, said industry insiders.

Improving liquidity

The MFI industry has also been witnessing a steady improvement in liquidity situation, backed by the government’s credit guarantee scheme and improved collections.

This apart, Small Industries Development Bank of India (SIDBI) recently sanctioned a financial assistance of ₹650 crore to AU SFB and Jana SFB so as to reach out to small-sized NBFCs and MFIs to  provide financial assistance to small businesses and micro entrepreneurs.

The move is expected to benefit more than 40 small-sized NBFCs / MFIs, which will help in mitigating the hardships being faced by them in garnering resources for their businesses, said SIDBI.

SFBs’ lending to MFIs has picked up after thw RBI allowed their on-lending to MFIs to be classified as priority sector lending. SIDBI’s line of credit to these two SFBs is expected to give a fillip to greater credit flow to MFIs, said Satish.

It is to be noted that the pandemic has adversely impacted the businesses of MSMEs, leading to slow down in income generation activities of these small businesses and micro enterprises. This has further adversely affected the collections and liquidity position of NBFCs and MFIs. The smaller NBFCs / MFIs, in particular, have always faced challenges in accessing adequate institutional funding, and generally source their funds support from other well-established non-banking companies or SFBs.

“The smaller players are usually starved of liquidity and since we work closely with these MFIs, we know what is happening on ground. So, for us it becomes easier to take exposure on these smaller or mid-sized MFIs. Overall liquidity is not an issue, it is ensuring that it goes to the right hand at right time,” said Ajay Kanwal, MD & CEO, Jana SFB. 

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