MFI guarantee may spur rural lending
The credit guarantee to facilitate micro loans announced by Finance Minister Nirmala Sitharaman on Monday is expected to improve liquidity for microfinance institutions (MFIS), especially smaller firms, and spur lending in rural areas from the second quarter (Q2) after very low volumes in Q1.
Alok Misra, chief executive officer and director, Microfinance Institution Network (MFIN), said the scheme will cover term loans from banks to MFIS, unlike only commercial paper/non-convertible Debentures in last year’s package. It will facilitate flow of funds, he said.
Guarantee will be provided to banks for loans to new or existing NBFC-MFIS or
MFIS for on lending up to ~1.25 lakh to approximately 2.5 million small borrowers. The guarantee will last till March 31, 2022, or till guarantees worth ~7,500 crore are issued, whichever is earlier, according to the finance ministry presentation.
MFI executives said the revision has bettered the scheme in three ways. First, tenor of loan has been extended to three years from 18 months.
Second, there is a cap on the interest rate charged by banks. Third, earlier institutions had to provide collateral upfront and did not get time to originate fresh loans. However, with the credit guarantee in place, MFIS will perhaps get three-four months to originate the portfolio and pledge it.
P Satish, executive director, Sa-dhan, a microfinance industry lobby group, said the combined borrowers base of NBFC-MFIS and non-profit MFIS is 48.1 million. There are 90 non-profit MFIS and the tally of NBFC-MFIS is over 80. Small and medium-sized MFIS faced challenges in getting funds. With the credit guarantee, disbursements should start from MFIS in Q2, Satish said.
Sadaf Sayeed, CEO, Muthoot Microfin, said the scheme will encourage fresh lending from banks to MFIS and will address the fund starvation faced by the industry in the short term. MFIS can reach remote, rural areas. This will provide much needed impetus for credit growth in the rural economy.
Guarantee will be provided to banks for loans to new or existing NBFC-MFIS or MFIS for onward lending up to ~1.25 lakh to approximately 2.5 mn small borrowers