Microfinance firms poised for consolidation after Covid-19-induced lockdown – The Economic Times

Clipped from: https://economictimes.indiatimes.com/

There are 96 MFIs with less than Rs 200 crore in loans outstanding that together have a total loan portfolio of about Rs 5,000 crore and cater to about 2.5 million marginalised women borrowers.

KOLKATA: The microfinance sector is poised for consolidation, with about a dozen such firms looking to take this route.

Microfinance firms with less than Rs 200 crore of loans outstanding have indicated their intentions to be sold or to merge as they face rising stress after the Covid-19-induced lockdown destabilised their business cycle and is eroding capital.

At least three chief executive officers confirmed to ET that they have received such proposals.

MFI association Sa-Dhan identified about 25 entities which had thin or no profit margins even before the outbreak of Covid-19 globally. Their situation turned worse with scanty repayment collections after the Reserve Bank of India extended a moratorium on loan repayments by three months to August 30.

Many of these firms are also exploring possibilities of amalgamation.

“The smaller ones are facing more difficulty in accessing capital and liquidity,” said Sa-Dhan executive director P Satish. “We have initiated discussions on the possibility of three or four MFIs coming together for merger.”

The association intends to take professional advice and will hire consultants to take this forward.

There are 96 MFIs with less than Rs 200 crore in loans outstanding that together have a total loan portfolio of about Rs 5,000 crore and cater to about 2.5 million marginalised women borrowers.

“Consolidation is bound to happen. But it’s difficult to get buyers at this juncture,” said an MFI veteran. MFIs that have been approached for buyouts are testing the water.

Sa-Dhan has sought Rs 8,700 crore as emergency credit line from banks for its members, including a Rs 450 crore facility exclusively for small and mid-size MFIs.

With the lockdown being eased, cashflows for MFIs have improved and almost half their borrowers have started clearing their past dues. However, this may not be enough for many smaller lenders because they have received inadequate or no support from banks and development financial institutions such as Small Industries Development Bank of India.

In a letter to finance minister Nirmala Sitharaman, Sa-Dhan sought an additional Rs 1,000 crore in capital for MFIs looking at consolidation.

“Impact of liquidity and insolvency on small and medium MFIs may also impact the borrowers adversely as they may be devoid of credit support at this critical juncture. In this regard, we request you to kindly support the sector, so that we can continue serving our clients to support and restore their livelihoods,” it said in the letter dated June 8.

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