MFI collections in July spurt to 70-75% of pre-Covid level: Crisil

April was worst, with near zero collection

Collections by microfinance institutions (MFIs) in India rebounded to 70-75 per cent in July on gradual easing of restrictions imposed in lockdown to contain the Covid-19 pandemic, according to rating agency Crisil.

The repayments by borrowers had plunged to near zero in April due to the nationwide lockdown to stem the pandemic.

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

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

Collections were in single digit through May because of the moratorium granted by MFIs to their borrowers on an opt-out basis. They sprang to 55-60 per cent in June and continues to improve.

They have been relatively resilient given that only home loans and gold loans, among the major asset classes of non-banking financial companies2 (NBFCs), have clocked higher collection efficiency. This is despite MFI borrowers having relatively weaker credit profiles and field-intensive operations. Field activity involves high personal touch, such as home visits and physical collection of cash. Additionally, disbursements during this period have been negligible.

Krishnan Sitaraman, Senior Director, Crisil Ratings, “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.”

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