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Coronavirus: Small, midsize MFIs look for unused credit limit due to liquidity crunch

PTI     April 23, 2020

Several microfinance institutions, particularly small and mid-size lenders, have been looking to access "unused sanctioned credit lines" in a bid to overcome current liquidity crunch as the sector is adversely impacted due to the lockdown imposed to contain the coronavirus outbreak, officials said.

Unused approved credit lines, which were not disbursed in the last financial year by the banks due the lockdown, are expected to be extended to MFIs, P Satish, executive director of Sa-Dhan, a self-regulatory organisation of the industry, said.

"Some MFIs are looking to access such resources at the earliest as it will ease their liquidity condition to some extent," he said.

Echoing Satish, Kuldip Maity, member of the West Bengal unit of the Association of Microfinance Institutions said, liquidity is a "cause of concern for everybody", and several MFIs "are in discussion with their lenders to avail unused but approved credit limit as they have to be equipped with the resources to cater to small borrowers".

"Usually in March, disbursement to MFIs picks up as the banks also look forward to meet their year-end target. Due to the coronavirus-induced disruption, roughly around Rs 4,000 crore could not be disbursed to MFIs but was either sanctioned or yet to be approved by lenders," Satish told PTI.

But this (such unused sanction loan limit) will "not be sufficient to provide services to small borrowers", and they will need additional funding from banks and development finance institutions, when the end-users start demanding credit to reorganise their businesses, following lifting of the ongoing lockdown, he said.

Following certain relaxations given by the Centre, the industry body has issued an advisory to its members, saying that they can open branches in "green and non-containment" zones but they need to follow health safety practices and social distancing norms.

"Many MFIs have opened branches in selected areas but it is not business-as-usual. Group meetings are not allowed and many of the field-level staffers have been harassed by some district administrations in several states," Satish said.

Few branches have been opened in green zone areas in different states from this week but deputing staff there is a challenge.

So operations as such have not resumed and there is no collection, Maity, who is also managing director, Village Financial Services, said.

"But micro lenders are exploring to keep fund ready so that they can extend credit to end users once the ongoing lockdown is lifted," he said.

Dibyajyoti Pattanaik, director of Bhubaneswar-based MFI Annapurna Finance, told PTI, "We are talking with lenders to extend unutilised credit amount which was sanctioned. The responses from them have been positive."

The Reserve Bank of India had recently announced the Targeted Long-Term Repo Operations 2.0 (TLTRO) window of Rs 50,000 crore. It is aimed at providing liquidity to small and mid-sized corporates, including non-banking financial companies (NBFCs) and micro finance institutions (MFIs) impacted by COVID-19 disruptions.

"RBI's TLTRO scheme is welcome. Only big, well-rated companies will be able to access this money. For the others, especially small and medium ones, a repayment moratorium from their banks and lenders will be most appropriate," MFIN CEO Harsh Shrivastava told PTI.

Rating agency ICRA recently said most of the MFIs have extended a moratorium to their borrowers till May 31, 2020.

However, they are yet to formally receive moratorium from their lenders and the absence of the same could severely impact their ability to serve their debt-servicing obligations.

Lenders and investors may adopt a wait-and-watch policy. MFIs' ability to securitise portfolios to generate liquidity may also be limited in the interim, the agency said in a note.

"Entities currently in the process of raising capital may face some delay as investors may adopt a wait-and-watch strategy and observe the collection efficiency trends post the lockdown and renegotiate valuations, which may impact their solvency and liquidity positions in the near term," it added.

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