Microfinance Collections : COVID-19 Lockdown

Microfinance works on a high touch model with the repayments and collections are made in groups of nine to ten people. The collections are mostly done every week. The lockdown during the present spread of coronavirus has put the microfinance sector on a fall.

Collection and disbursements of loans in 75 districts in India under lockdown has been temporarily suspended, according to MFIN, Microfinance Institutions Network.

Rough estimates see, the districts in which lockdown has been imposed, account for close to 50% of microfinance business in India.

The gross loan of the microfinance industry by December 2019 was Rs 2.11 trillion. Every month close to 10% of the portfolio gets repaid. This means that a huge part of Rs 20,000-22,000 crore of monthly collection by the industry, including banks, will get disrupted.

At stake also is the portfolio of many lenders, including Bandhan Bank. In December 2019, the share of banks in microlending was highest at 40%. For example, close to 60% of Bandhan Bank’s portfolio is from microfinance.

The portfolio of small finance banks is at risk, which have close 90% of portfolio concentrated in the microfinance.

There has been uncertainty in the sector due to the lockdown, MFI operations have been suspended, according to Small Finance Bank, based in Kerala. The state has been facing the Corona outbreak for the last two weeks, and starting today, MFI operations have been halted in the country.

Many urban-centric MFIs that had been focusing on technology for enhancing efficiency in the MFI sector are affected by the crisis.

Although Vaya, a tech-focused MFI, has ordered all backend employees to work from home which has been made possible by a cloud-based application, at the field level, the business has been severely hit. Even though a part of the collection is cashless through a handheld device, it requires the physical presence of field incharges at the spot.

Till December 2019, the collections were more or less normal. Post lockdown, every collection activity has been suspended. This is a challenging moment for the industry, and we do not know how long it will last.

The microfinance sector has been witnessing devastating times by last few months with rising delinquencies due to protests against CAA (Citizenship Amendment Act). According to data from CRIF MicroLend for Q3 of this financial year, the portfolio at risk (PAR) for the industry for repayment between 31 and 180 days stood at 1.5%, which was 50% higher on a year-on-year basis.