What awaits microfinance institutions after the pandemic disruption?

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Small business owners and people who do not have access to banking services usually turn to microfinance institutions for capital. But with their businesses affected, many of them defaulted on loan IMEs. It hit the lenders hard and most of them suffered losses. But now these microfinance institutions are witnessing some green shoots of recovery.

While the negative effects persist, the second quarter starting in July marked a turnaround for microfinance institutions. The holiday season saw a gradual increase in loan repayments and disbursements. The lenders’ combined micro-loan portfolio had shrunk by 14% to Rs 2.14 trillion in June 2021 from Rs 2.49 trillion in March 2021.

The quarterly decline in the gross loan portfolio (GLP) was observed across all types of lenders, including commercial banks and finance companies.

After the economy recovered in the second quarter, the loan portfolio grew to Rs 2.52 trillion by the end of August 2021. In line with the recovery, the volume of loans disbursed also increased by slightly more. from Rs 26,700 crore in April-June to 7.4 million accounts to Rs 36,575 crore in July-September 2021 to around 10 million accounts.

According to data from Sa-Dhan, a pressure group in the microfinance sector, straining the quality of assets, arrears of 30 days, or more than 30 DPD, jumped to 16.56% in June from 9 , 06% in March 2021. The level of 30+ DPD in the June 2020 quarter, which coincided with the first wave of the pandemic, was 1.89%. The situation improved with a drop from 30+ DPD to 11.85 by the end of August 2021.

Delinquency in the 90 days plus contributions, or 90+ DPD, has actually decreased from 4.12% in March 2021 to 3.01% in June 2021. However, 90+ DPD has fallen to 4.07% August 31, 2021, reflecting the existence of stress in households at the bottom of the pyramid

Meanwhile, as microfinance institutions recover from their losses, the Reserve Bank of India has given lenders advice. RBI Deputy Governor Mr. Rajeshwar Rao said last month that while the central bank will promote growth in the microfinance industry, lenders should not be cautious about obtaining returns. He said balance sheet growth should not be built by compromising prudent driving.

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