Transactions hit, MFIs ask RBI for grace period

RBI is being requested of the grace period so that the daily operations of MFIs can be sustained

Disbursements and collections in the microfinance sector, which operates almost entirely on cash, came to a near-halt with the voiding of Rs 500 and Rs 1,000 notes.

Roughly, daily disbursements worth Rs 250 crore and collections worth Rs 200 crore are undertaken entirely in cash in the sector, says Ratna Vishwanathan, chief executive officer (CEO), Microfinance Institutions Network (MFIN).

MFIN has requested the Reserve Bank of India (RBI) for clarity on whether microfinance institutions (MFIs) are also covered by the government order. If they are, it has requested for a grace period of 72 hours, so that the daily operations of MFIs can be sustained. "The intention of the move is to curb illegal money laundering and not to curb the business of legal entities," was her reasoning.

And, MFIs are also contemplating a move towards a cashless system, with transactions routed entirely through banks.

"For the next couple of days, there is surely going to be some pain. However, in the long term, this is a positive move as MFIs would be forced to go cashless. In fact, we have started on a pilot basis a project to make all our transactions cashless," said R Baskar Babu, CEO of Suryoday Micro Finance.

"At present, there is no disbursement and collection. We have expedited the process to open bank accounts. We have also requested RBI to give us a 72 hours window to allow us to accept old Rs 500 and Rs 1,000 notes," said Paul Thomas, managing director, ESAF Microfinance.

The average transaction size in the MFI sector is around Rs 2,000. More than half take place in denominations of Rs 500 or Rs 1,000.

"While going cashless is a great move, one must also keep in mind the convenience of rural people,'' said Rajeev Yadav, CEO of Disha Microfin.

After the launch of the Jan Dhan Yojna, many MFI clients have a bank account. "When the scheme was rolled out in 2014, we had committed that MFIs will work with banks to open savings accounts for all their clients. Estimates suggest close to 70% of borrowers now have a bank account. Some of the operational problems from the demonetisation are of a short-term nature. Fairly soon, things will normalise. And, the laggards will be pushed to go cashless and route all transactions through a bank account," said Alok Prasad, former CEO of MFIN.