Banks slash funding to MFIs

Even as the micro finance sector struggles with an acute cash crunch on account of demonetisation, banks have partially choked fresh funding to it.

No new loans, say sources in the sector, have been issued over the past month. Banks are even holding back on sanctioned lines of credit to micro finance institutions (MFIs).

“MFIs are disbursing money from collections to keep the business going,” said Ratna Vishwanathan, chief executive at the Micro Finance Institutions Network (MFIN).

Disbursements have reduced by 50 per cent in the past month. Loan recovery is down from 99 per cent before demonetisation to 60-70 per cent. Rumours of debt waivers have further impacted the recovery. And, with MFIs at risk of defaulting on bank loans, their credit ratings have also come under watch.  Recently, rating agency ICRA put three MFIs — Cashpor Micro Credit, Sambandh Finserve and SV Credit Line — on a watch list, citing negative implications of demonetisation. 

While individuals are allowed to withdraw Rs 24,000 a week from banks, institutions are allowed to withdraw no more than Rs 50,000 a week. 

“We have got sanctioned pipelines of about Rs 500 crore from banks. We are not able to disburse much but this is being used to replay our earlier loans, so that our credit ratings are not impacted. A lot of rumour about debt waiver has further impacted recovery,” said H P Singh, founder and managing director of Satin Creditcare. 

“Public sector banks have been helpful. They have been honouring their sanctions. Some private banks have been holding the line of credit and seeking more details on disbursements and recovery,” said Manoj Nambiar, managing director, Arohan Microfinance. “Banks are waiting for the situation to improve. Our broad focus has been to use the recovered money for disbursal. Fresh disbursals are down by almost 50 per cent,’’ said R Baskar Babu, chief executive, Suryoday Micro Finance. In recent months, MFIs had seen a brisk rise in debt funding from banks, as the sector had seen healthy growth in the past year. In the June quarter, says MFIN, total debt funding for MFIs was Rs 8,384 crore, against Rs 3,732 crore in the same period a year before. And, the aggregate loan portfolio was Rs 60,165 crore, higher by 89 per cent.

Fund crunch

• No new loans issued to microfinance institutions (MFIs) over the past month

• Some private banks are holding back sanctioned line of credit to MFIs

• Disbursements reduced 50% in the past month

• Loan recovery is down from 99% before demonetisation to 60-70%

• MFIs are allowed to withdraw no more than Rs 50,000 a week