Measures to have a positive effect on microfinance

MUMBAI: Finance minister Nirmala Sitharaman’s announcements on Thursday, aimed at migrant labour, street vendors and farmers, are likely to have a positive effect on microfinance institutions (MFIs) and other lenders for whom these segments are a major part of the clientele.

Measures announced include ₹30,000 crore of additional funding for farmers through Nabard, loans worth up to ₹10,000 per individual for around five million street vendors and extension of Credit Linked Subsidy Scheme for affordable housing.

The microfinance industry has been reeling under the lockdown that has impacted the finances of their customers. Thursday’s announcements are bound to provide some relief as their customers will be able to access funds to manage their liquidity. “Overall, these measures are positive steps and focused towards the weaker segment of the society, which is also a target segment for MFIs,” said Prakash Agarwal, director and head-financial institutions at India Ratings and Research. The steps will bring relief to borrowers, which should indirectly benefit MFIs, he added.

Ajay Kanwal, MD and CEO of Jana Small Finance Bank, said: “The support coming from the government is very important because the size of the challenge is so large that private institutions by themselves will not be able to handle it.” Some experts said MFIs may lose some clients as banks gain access to them under the schemes announced.