Reeling under the impact of the second wave of the coronavirus pandemic, the microfinance sector has reached out to the Reserve Bank of India (RBI) for support, including an emergency credit line and creating awareness among State governments on ill effects of loan waiver announcements.
In a letter to the RBI, Sa-Dhan, the industry body representing the microfinance sector, has sought an emergency credit line of up to 25% of their outstanding with the lending banks. This will enable micro finance institutions (MFIs) to mobilise ₹15,000 crores.
The industry has also sought a special liquidity facility of at least ₹15,000 crore through NABARD and SIDBI. “At least 40% of funds under this may be earmarked for MFIs with portfolio below ₹500 crore.
A targeted funding facility like this will help MFIs to a great extent.” It also recommended introduction of a partial Credit Guarantee Scheme 3.0 as it may help boost confidence of banks in the “present uncertain times” to lend to the microfinance sector, especially small and mid-size MFIs with relatively lower ratings.
The RBI should emphasise to the Central as well as the State governments the role of the microfinance sector in financial inclusion and highlight the need to categorise it under “essential services” without imposing restrictions for operations of the sector which affects clients as well as MFIs.
“RBI may reiterate to State governments on ill effects of loan waiver announcements and its implications on credit discipline and flow of funds to the marginalised sections,” it added.
Other recommendations include assessing the cash flow situation of MFIs by banks and development finance institutions (DFIs) and accordingly provide them moratorium or restructuring support for up to six months to a year. “During the first wave of COVID-19 , only 40% of lenders provided moratoriums to MFIs which led to severe liquidity crunch for MFIs,” it noted.
