Budget wishlist: MFIs seek equity support, govt guarantee for bank loans

The microfinance industry has requested the government for creating a Rs 500 crore equity for growth capital as well as guarantee for loans to smaller lenders, in the upcoming Union budget, which is likely to be presented in the second half of July.

“In order to make the services of microfinance institutions (MFIs) available to the unreached populations in the country as they need to grow and expand, growth capital is required. Government may consider creating a special fund similar to India Micro Finance Equity Fund (IMEF) within Nabard for extending equity support to small and upcoming MFIs. An amount of Rs 500 crore may be provided,” Sa-dhan, the self-regulatory organization (SRO) of MFIs, urged the Union finance minister in a communication.

Sa-dhan said MFIs have an outstanding of more than Rs 1.5 trillion loans to over five crore households as on date. About 75% of these clients are from rural and far-flung areas, it said, adding that these lenders have been playing a major role in implementation of Pradhan Mantri Mudra Yojana (PMMY) since 2015.

The SRO said smaller MFIs, mostly those with portfolio below Rs 1,000 crore, find it difficult to raise debt funds from mainstream lenders like banks and financial institutions, because they are small in size that makes their rating lower. In this context, it suggested a government guarantee fund for smaller MFIs.

“Government may consider creating a guarantee fund for smaller MFIs with NABSanrakshan, the subsidiary of Nabard, or NCGTC of Sidbi, which can extend guarantee cover for borrowings of MFIs from banks and financial institutions. To start with, a fund of Rs 1,000 crore may be allocated for the purpose,” the communication said.

Sa-dhan has also suggested a special fund for the northeastern states in view of the unrest in Manipur, which has hit micro lenders that extended loans in the state.

“Manipur was one state that had stable MFIs which extended credit to the people in the past. The loss of lives and livelihoods there has affected both microfinance organizations as well as borrowers. The borrowers are unable to pay back because of which MFIs have been defaulting on their loans from lenders and are also unable to raise funds for further lending,” the SRO said.

Sa-dhan has suggested a dedicated fund in the form of a grant fund, or interest-free/low-interest kind of fund.

“Such a fund can be used to extend fresh loans to MFIs for restarting their business and also help in lending to poor people, which will rebuild the economy of the state through micro enterprise activities. An amount of Rs 200 crore may be earmarked for the purpose,” it said.