{"id":18869,"date":"2021-02-10T12:45:25","date_gmt":"2021-02-10T12:45:25","guid":{"rendered":"https:\/\/habiletechnologies.com\/?p=18869"},"modified":"2022-07-22T07:40:01","modified_gmt":"2022-07-22T07:40:01","slug":"loan-origination-post-covid-19-for-mfis","status":"publish","type":"post","link":"https:\/\/wiki.cloudbankin.com\/index.php\/2021\/02\/10\/18869\/loan-origination-post-covid-19-for-mfis\/","title":{"rendered":"Loan Origination Post COVID-19 for MFIs"},"content":{"rendered":"

[vc_row][vc_column][vc_single_image image=”18889″ img_size=”medium” alignment=”center”][vc_column_text]Microfinance or Microcredit is a significant part of the retail finance industry in India. It is the mainstay for providing access to finance to low-income households esp to women. Approx. 60 million women, who enjoy the largest share of the customer base, have a credit portfolio outstanding of <\/a>almost<\/a> Rs. 3 lakh crores<\/a><\/span>. But the COVID-19 pandemic pushed in lockdowns that halted almost all businesses (except essential services) also had a very significant impact on the MFI sector. However, despite the unforeseen setback, the sector seems to be on a path to recovery – and we can see why from the conversation below between Mr. Mani Parthasarathy<\/a><\/span>, Founder of Habile Technologies<\/a><\/span> Private Limited and Mr. Prashant Thakker<\/a><\/span>, Executive Director and CEO of Centrum Microcredit Limited<\/a><\/span>.<\/span>[\/vc_column_text][vc_empty_space height=”25px”][\/vc_column][\/vc_row][vc_row][vc_column width=”1\/2″][vc_column_text]<\/p>\n

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\"Mani\"<\/div>\n
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Mani Parthasarathy<\/h4>\n

Prashant, COVID-19 has hit the whole world badly. In your opinion, how were Microfinance Institutions (MFIs) affected because of the pandemic?<\/strong><\/em><\/p>\n<\/div>\n<\/div>\n

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\"Prashant<\/div>\n
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Prashant Thakker<\/h4>\n

Microfinance has been a high-tech, customer-facing and customer-connected industry. From a COVID-19 perspective, these aspects have come out to the fore. From March-April 2020, we lost physical connect and contact with our customers but, we were able to deploy a multi-pronged digital, email call and SMS reach out program that has helped us to stay connected and recover collections more rapidly than the retail lending industry. In the true sense, we were exposed to the  impact of the pandemic on the microfinance customers’ livelihoods, jobs and businesses. <\/span>
\nThe initial 3 months were quite difficult, but since September we have recovered well. Today if you look at the collection figures of the microcredit\/microfinance asset class, we are right up there at over 90%.<\/span><\/p>\n<\/div>\n<\/div>\n

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\"Mani\"<\/div>\n
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Mani Parthasarathy<\/h4>\n

We\u2019d like to understand the size of the microfinance industry \u2013 how many MFIs are there, the market size and types of entities supporting rural credit, etc. Can you shed some light on this?<\/strong><\/em><\/p>\n<\/div>\n<\/div>\n

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\"Prashant<\/div>\n
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Prashant Thakker<\/h4>\n

Microfinance is the only industry which has what is called a \u2018Self-Regulatory Organization\u2019 (SRO), licensed by the RBI. There are two SROs in the microfinance sector \u2013 MFIN<\/a><\/span> and Sa-Dhan<\/a><\/span>. MFIN (Microfinance Institutions Network) covers RBI-licensed, leading NBFC (Non-Banking Financial Institutions) microfinance entities and is mandated with the objective of promoting and regulating a large chunk of the microfinance sector in India. Other entities like banks, BCs and NBFCs are also members. Sa-Dhan also covers NGOs and cooperative societies and serves to build community development finance in India.<\/span>
\nAccording to MFIN data, there are 84 NBFC MFIs, 12 banks, 8 small finance banks, around 46 NBFCs (having microfinance operations), and about 21 others \u2013 180 entities servicing a mammoth 10.5 crores customers, with a portfolio outstanding of Rs. 2,31,000 crores! Extend this portfolio to include entities enrolled in the <\/span>NABARD SHG-Bank Linkage Programme<\/span><\/a><\/span>, and the total market size jumps to Rs. 3,35,000 crores.<\/span><\/p>\n<\/div>\n

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\"Mani\"<\/div>\n
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Mani Parthasarathy<\/h4>\n

Wow, I think that\u2019s a massive industry size. Prashant, could you run us through the day-to-day activities in an MFI?<\/strong><\/em><\/p>\n<\/div>\n<\/div>\n

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\"Prashant<\/div>\n
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Prashant Thakker<\/h4>\n

Yes, Microfinance is one of the largest retail segments after housing finance. Here is how the loan cycle in microfinance works, under the JLG model, a group of women customers are introduced to the concept of a joint liability group. The credit parameters are set for this group and credit is given to each member of the group. More often than not, each member gets a similar loan amount as the others, forming a joint-liability group (JLG). This means that if one member defaults, the other would have to cover up that member\u2019s repayment. <\/span>
\nIt\u2019s remarkable how deeply regulated this sector is by RBI: interest rate caps, regulated margins, what documentation to provide the client, how to approach and interact with clients, code of conduct and responsible lending. \u2013 all aspects are regulated. The key here is that the client gets access to finance at her doorstep and within her community \u2013 something that the other lending segments cannot do with such regulations. For this, the client is able to afford the premium, and companies like ours who have a social and an economic motive can provide them with the right financing.<\/span><\/p>\n<\/div>\n<\/div>\n

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\"Mani\"<\/div>\n
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Mani Parthasarathy<\/h4>\n

And how have these activities been disrupted due to COVID-19?<\/strong><\/em><\/p>\n<\/div>\n<\/div>\n

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\"Prashant<\/div>\n
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Prashant Thakker<\/h4>\n

With respect to the disruption of these activities during the pandemic, there are a few noteworthy points:<\/span><\/p>\n