Microfinance industry association Sa-dhan has written to Prime Minister Narendra Modi seeking extension of loan moratorium benefits to the microfinance industry.
“Despite Reserve Bank of India’s circular pertaining to moratorium on retail loans, financial institutions are refraining from extending the same benefits to microfinance institutions,” P. Satish, executive director – Sa-Dhan said.
Mr. Satish explained that microfinance institutions (MFIs) borrowed from banks and development financial institutions (DFIs) to lend to the end user. While MFIs were providing moratorium to their customers following the RBI announcement, they would still have to repay banks. “Without any collection, MFIs will be under tremendous financial strain in the absence of the three-month moratorium,” he added.
Sa-Dhan pointed out that not extending the moratorium would cause MFIs to face significant cash flow issues, in the absence of any collections even for their operating costs.
“In such a scenario, it is likely that they will default on repayments, further increasing the stress in the banking system. The net impact will be felt on the vulnerable segments of society, who in the absence of their regular sources of incomes or funds from their usual micro-finance lenders, may turn to predatory money lenders out of desperation.”
Meanwhile, ratings agency ICRA said the decision of the Reserve Bank of India (RBI) to provide a 3-month loan moratorium to customers will put a strain on the liquidity position of microfinance institutions and could lead to asset quality pressure.
As collections from borrowers could stay muted for a while after the lockdown eases, the industry stares at a cumulative cash shortfall of about ₹2,600 crore, ICRA said based on an analysis of 29 MFIs, which constitute about 70% of the industry.