Microfinance industry association Sa-dhan has written to the Reserve Bank as well as to SEBI, requesting that ratings agencies such as Crisil and Care Ratings be directed to push back their assessment of microlenders by three months due to the impact on operations following the COVID-19 outbreak.
Ratings agencies usually revise ratings of microlenders after 12 months. These ratings are important as they determine the creditworthiness of MFIs, helping banks in their decision-making process on lending to microlenders.
“Though the government has allowed MFIs to function in a limited manner, the ground-level situation is not conducive for regular functioning. MFIs are unable to complete the annual closing of accounts related work and take up the audit. This is an unprecedented situation for the entire economy and also the microfinance sector,” P. Satish, executive director of Sa-Dhan, said in the letters to the two agencies.
He added that some ratings agencies were seeking to give fresh ratings to MFIs based on incomplete and insufficient information, and an absence of field assessment. He reasoned that any fresh rating would, therefore, be erroneous and incorrect.
“It is necessary that rating agencies should wait for the situation to normalise in the country and normal economic activities to resume before giving a fresh rating to MFIs.”
‘15-month rating period’
“The most appropriate course of action at this juncture would be to extend the existing rating period from 12 to 15 months, so that fresh assessment can be done and renewed rating can be assigned after the normal operations resume in the microfinance sector,” the letters to the regulators dated April 28, stated.
Mr. Satish also noted that as per Credit Information Bureau, on January 31, 2020, portfolio of MFIs stood at ₹90,413 crore. While the repayment rate is normally more than 98%, due to sudden outburst of the virus and the subsequent nationwide lockdown, MFIs had to shut their operations mid-March onwards.
“There is a need for intervention at this juncture by SEBI/RBI to ensure that the microfinance markets are not distressed by unreasonable actions on part of the rating agencies. We request you to advice the rating agencies in this regard,” the letter added.