Key Highlights
- Micro-finance companies will not create heavy NPA in the second wave of COVID-19.
- According to an Acuite report of the MFI industry, has had an impact on the sector’s profitability. A few MFIs are predicted to lose money in FY21.
- RBI helping the MFI to overcome the situation.
What are Microfinance companies?
Microfinance companies are financial firms that specialize in providing small-scale financial services such as loans, credit, and savings. Micro-finance companies provide small loans to a variety of small businesses and households. As they lack access to traditional banking networks or loan eligibility. Microfinance enables people to take out fairly small business loans safely and by responsible lending practices.
Role of Micro-finance companies in India
- The idea of microfinance has been promoted to uplift the poor and promoting economic development.
- Its goal is to help economically disadvantaged communities achieve greater wealth development and income protection at the household and community levels.
- Microfinance is a concept that focuses on women by providing loans to them. It serves as a tool for poor women’s empowerment and as women become more independent. They can contribute directly to their families’ well-being and confront all gender disparities.
Micro-finance companies in second-wave of COVID-19
The second wave has not hit the rural areas drastically. In the last week of April 2021, collections plummeted. According to Umesh Revankar, managing director and CEO of Shriram Transport Finance, non-bank lenders may see some temporary delays in loan repayments. In April or May 2021. As customers seek to save cash, but this will not result in a substantial increase in non-performing assets (NPAs). The company and collections will not suffer because of the pent-up demand. Infrastructure, real estate, and consumer spending are seeing high demand, which will help recover quickly. According to a study conducted by Acuite on the MFI market, bad loan provisions have impacted the sector’s profitability. And a few MFIs are expected to record losses in FY21. The overall operating climate, however, was favorable for further recovery and healthy growth in the sector.
Micro-finance companies seeking help from RBI
The central bank has announced several steps to assist microlenders in overcoming their difficulties. Small finance banks will be allowed to count new lending to MFIs with an asset size of up to 500 crores for on-lending to individual borrowers as priority sector lending, according to RBI governor Shaktikanta Das. This service will be available until March 31, 2022. MFI association SaDhan has requested a special liquidity facility of at least Rs 15,000 crore from all-India financial institutions. Including the National Bank for Agriculture and Rural Development (NABARD) and the Small Industries Development Bank of India in a letter to the RBI Governor.
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