Finance minister Sitharaman’s measures to have a positive effect on microfinance

The microfinance industry has been reeling under the lockdown that has impacted the finances of their customers.

Finance minister Nirmala Sitharaman’s announcements on Thursday, aimed at migrant labour, street vendors and farmers, are likely to have a positive effect on microfinance institutions (MFIs) and other lenders for whom these segments are a major part of clientele.

Labourers resting on sacks of onions in Okhla Mandi, New Delhi.(Biplov Bhuyan/HT PHOTO)

Measures announced include Rs 30,000 crore of additional funding for farmers through Nabard, loans worth up to Rs 10,000 per individual for around five million street vendors, extension of Credit Linked Subsidy Scheme (CLSS) scheme for affordable housing and a Rs 1,500 crore interest subvention scheme for MUDRA-Sishu loans for the self-employed and small businesses.

The microfinance industry has been reeling under the lockdown that has impacted the finances of their customers. MFIs are also facing pressure on their own balance sheets due to the need to provide repayment moratoriums to clients. Thursday’s announcements are bound to provide some relief as their customers will be able to access funds to manage their liquidity.

“Overall, these measures are positive steps and focussed towards the weaker segment of the society, which is also target segment for MFIs,” said Prakash Agarwal, director and head-financial institutions at India Ratings and Research. Agarwal said the measures will bring relief to borrowers, which should indirectly benefit MFIs.

Ajay Kanwal, managing director and chief executive of Jana Small Finance Bank, said: “All the MFIs and banks like ours, we will certainly be preparing for what we call as emergency loans when the lockdown is opened up. The support coming from the government is very important because the size of the challenge is so large that private institutions by themselves will not be able to handle it.”

However, some experts said MFIs run the risk of losing some clients as banks gain access to them under the government schemes announced.