Despite moratorium, rural recoveries on rise for microfinance institutions

Despite moratorium, rural customers of most microfinance institutions (MFIs) are steadily clearing their dues. Most MFIs are expecting more than 50 per cent recovery in the month of June, mostly backed by rural repayments.

Income from harvesting season, along with the essential nature of rural occupations, helped rural borrowers to be more resilient to the economic slowdown due to Covid.

According to MFIs, the recoveries from rural areas in May were higher by 10-20 per cent compared to that in urban areas.

A majority of MFI borrowers have the option to avail moratorium till the end of August.  

CreditAccess Grameen, which has about 85 per cent of its borrowers in rural areas gave a blanket moratorium on repayments for the months of April and May to its customers. In the present month, the MFI is eying 70 per cent recovery. Based on interactions with its borrowers conducted over the past fifteen days, the MFI has estimated that 70 per cent of customers are willing to repay in the present month, while 20 per cent customers are seeking additional time between fifteen days to a month for repayment. The remaining 10 per cent, who are the urban borrowers, have expressed inability to repay soon.

“Apart from harvesting income, the essential nature of services in rural areas, like agriculture and dairy, are likely to help in recoveries. These sectors have already been functioning over the last four to five weeks,” said Udaya Kumar Hebbar, MD & CEO, CreditAccess Grameen.

According to Manoj Nambiar, chairman, MFIN (Microfinance Institutions Network), a microfinance representative organisation, the percentage of recovery at present is between 20-40 per cent across geographies, with in some rural pockets it is as much as 40 per cent.

“In rural areas the recoveries are better. First, with income from harvesting, people are able to repay the loans. Secondly, the livelihoods in rural areas are less impacted due to Covid,” said Nambiar.

P Satish, Executive Director, Sa-Dhan, another microfinance representative body, said while the overall recoveries in the month of April was about 8-9 per cent, it had risen to 15-16 per cent in the month of May.

“Roughly, if the recoveries in urban areas is in the range of 11-12 per cent, in rural areas it is about 15-16 per cent,” said Satish.  

According to Rahul Mittra, CEO Margadarshak Financial Services, a rural focused organization which has operations in the agriculture belt of UP and Bihar, recoveries for the month of May was about 25-30 per cent, compared to almost nil in the month of April.

“We are looking to nearly double the recoveries in the month of June,” said Mittra.

As on 31st December 2019, NBFC-MFIs had about 30 million, with an aggregate gross loan portfolio at Rs 67,320 crore.

Due to favorable climatic conditions, India's foodgrains production is estimated at a record 291.95 million tonnes in the 2019-20 crop year (July-June), beating the target of 291 million tonnes.

Foreign Funding for two MFIs

Delhi-based Satya MicroCapital and Uttar Pradesh-based Sindhuja Microcredit have raised funding of Rs 105 crore and Rs 65 crore respectively. The funding is from Japan-based Gojo & Company that for Satya MicroCapital, and Norway-based Nordic Microfinance Initiative (NMI) and Carpediem Capital for Sindhuja Microcredit.

“Clearly show the confidence that equity investors have on Indian microfinance sector, its capacity to bounce back and manage its portfolio qualities even during demonitisation, Andhra crisis etc, making it a safe and viable impact investment. Both investments came in the last few days, showing resilience of the sector,” said Harsh Shrivastava, CEO, MFIN.