With rural areas impacted by Covid, MFIs face drop in collections

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With rural areas also affected by the second wave of the Covid-19 pandemic, microfinance institutions (MFIs) have seen collections decline and expect further uncertainties, but hope the situation will stabilize by the end of June.

“The situation was normal until at least the third week of April this year, unlike April and May 2020 when there was a full lockdown and no collections. The collections have now slowed down and are only 20 to 30 percent of the normal level, ”said P Satish, Executive Director of the MFI association SaDhan.

He noted that the lockdown this year has also resulted in some restrictions on mobility, while meeting customers is often difficult due to local security zones. A large number of MFI employees are also affected by Covid. In addition, this time rural areas are also badly affected by infections, said Satish.

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While segments such as dairy products and pure agriculture were not affected by the Covid wave this time either. However, there are some impacts on sectors where perishable goods such as vegetables are affected and cannot reach the market.

“The expectation is that if the pandemic peaks and rejuvenates in late May or early June, things can still be managed by mid and late June or early July,” he told BusinessLine.

SaDhan recently sent a representation to the Reserve Bank of India for further assistance to the MFI sector including an emergency line of credit.

Uncertainty about the quality of the assets

The rating agency ICRA had also pointed out that the microfinance industry continues to have uncertainties about the quality of assets in view of the rapidly increasing Covid 19 infections since March 2021.

“ICRA estimates collections will decrease sequentially by eight to ten percent in April 2021, and the same could continue to decline as infections continue to rise and more restrictions apply to all locations,” said Sachin Sachdeva, vice president and sector head of Financial Sector Reviews, had ICRA said in the recent note.

PN Vasudevan, managing director and CEO of Equitas Small Finance Bank, said an increase in local and regional lockdowns could have an impact on the collection for the month of May 2021.

The bank had a collection efficiency of 105.16 percent and a billing efficiency of 84.68 percent in April.

“The April 2021 collections stayed at a decent level as the first 15 days across the country were largely normal,” Vasudevan said.