MFI collections rebounds by 70-75% after Covid-19 restrictions ease: Report

The collections of microfinance institutions (MFIs), which had plunged to near zero in April because of the coronavirus lockdown, rebounded to 70-75 per cent in July on account of gradual lifting of restrictions, says a report.

"Collections had wallowed in single digit through May because of the moratorium granted by MFIs to their borrowers on an opt-out basis, but sprang to 55-60 per cent in June and continues to improve," the report by ratings agency Crisil said.

While the bounce-back has been faster than that envisaged earlier, improving it to the pre-pandemic levels of 98-99 per cent would be an important monitorable from an asset quality perspective, it added.

"Collections of microfinance institutions, which had plunged to near zero in April because of the nationwide lockdown to stem the Covid-19 pandemic, have rebounded to 70-75 per cent in July, with restrictions being lifted gradually," the report said.

It further said to create a buffer for potential pandemic-related credit costs, MFIs are expected to focus on raising additional equity capital over the near to medium term.

"The lifting of lockdown-related restrictions and resumption of local economic activity was faster in the rural and semi-urban areas. Consequently, MFIs with greater presence in these areas have reported better collection efficiency," Crisil Ratings' Senior Director Krishnan Sitaraman said.

Among states with the largest microfinance presence, Karnataka and Bihar reported better collections because they have managed to control the spread of the afflictions in the rural areas so far, he said.

However, Tamil Nadu and Maharashtra, which were facing the brunt of the pandemic and observing more stringent, localised lockdowns, saw sluggish collections, he added.

Given the momentum in collections and outflows largely limited to operating expenses, liquidity levels have improved over April, the report said.

Most MFIs received moratorium from banks and hence had low debt repayments, while disbursements were negligible.

MFIs have also raised about Rs 2,000 crore through bond issuances under the targeted long-term repo operations and partial credit guarantee schemes.

"The strong recovery in June and July notwithstanding, there is still a significant way to go before reaching prepandemic collection levels of 98-99 per cent," it said.

With the Covid-19 affliction rate still high and steadily percolating in hinterland, the ability of MFIs to further improve collections will be a key monitorable in the near term, it said.

However, intermittent lockdowns and localised restrictions could hamper the collection momentum, it added.