Assam MFI law may hit microfinance firms

NEW DELHI: The recently passed Micro Finance Institutions (MFI) Bill, 2020 by the Assam Assembly has the potential to increase asset quality challenges for micro lenders, according to a Crisil Ratings report.

It said announcement of any loan waiver could affect the repayment discipline which could further worsen the situation for micro financiers. Assam's microfinance portfolio (including banks and non-banks) was estimated at Rs 12,400 crore as of September 2020 or around five per cent of such loans in the country.

"For the sector, it's déjà vu a decade after the Andhra Pradesh (AP) ordinance of 2010," the rating agency said in the report.

It said the legislation is the latest in a string of events affecting microfinance lenders in Assam: economic stress in the tea plantation industry in October 2019, agitation over Citizenship Amendment Bill that December, and the COVID-19 pandemic that hit the entire nation.

Due to this, lenders -- especially Non-Banking Financial Company-Microfinance Institutions (NBFC-MFIs) -had already begun steadily paring down their portfolio in the state, the report said.

The share of NBFC-MFIs in Assam's total microfinance portfolio was around 18 per cent.

"In the case of NBFC-MFIs, the 30+ portfolio at risk for Assam was already high at around 20 per cent as on March 2020,” it said.