Microfinance industry association Sa-dhan has reached out to Prime Minister Narendra Modi seeking an extension of the loan moratorium benefits to the industry.
“Despite Reserve Bank of India’s circular pertaining to a moratorium on retail loans, financial institutions are refraining from extending the same benefits to microfinance institutions,” P. Satish, Executive Director – Sa-Dhan said.
He explained that microfinance institutions (MFIs) borrowed from banks and development financial institutions (DFIs) to lend to the end user. While they were providing a moratorium to their customers following the RBI announcement, they still have to repay banks. “Without any collection, the MFIs will be under tremendous financial strain in the absence of the three-month moratorium,” he noted.
In the letter to Mr Modi, Sa-Dhan pointed out that not extending the moratorium would cause the MFIs to face significant cash flow issues in the absence of any collections even for their operating costs. “In such a scenario, it is likely that they will default on repayments, further increasing the stress in the banking system. The net impact will be felt on the vulnerable segments of society, who in the absence of their regular sources of incomes or funds from their usual microfinance lenders, may turn to predatory money lenders out of desperation.”
Sa-Dhan urged that an urgent clarification be issued to all banks, DFIs such as NABARD, SIDBI and MUDRA, as well as NBFCs, that the MFIs were eligible to get a back-to-back moratorium for the terms loans.
“Our sector impacts over 6 crore low-income clients [touching 30 crore lives] in over 650 districts of the country, with a portfolio of Rs. 2.1 lakh crore. Nearly 75% of the microfinance loans are covered under the Shishu category of Mudra loans...If there is no timely intervention from RBI & the government, people at large will face extremely challenging situations, which will lead to unscrupulous money lenders flourishing charging exorbitant interest rate,” it said in a statement.
