KOLKATA: Today, the government outlined zonal designations for various parts of India. They simultaneously lifted limited restrictions based on those designations. Even though the nationwide lockdown itself has been extended till May 17, the full weight of those restrictions have fallen upon “containment-zones”. It follows that regions designated by the other three zones, aptly named red, orange and green, have progressively had restrictions lifted according to their degree of safety from Coronavirus.
Among businesses meant to open, the Ministry of Home Affairs has allowed Microfinance Institutions (MFIs) and Non-Banking Finance Companies (NBFCs) to restart operations in none other than Green and Orange zones in India.
These firms have directed employees, in restarting branches, to interact with customers who are in need of low-ticket, top-up loans. This move is meant to appease the centre which has been encouraging the banking sector to push credit to the underprivileged and MSMEs. The Reserve Bank of India went as far as to offer up a ₹25,000-Crore low-risk refinancing for NBFCs, to the banking sector.
After the inclusion of NBFCs and MFIs under essential services by MHA, Spandana Sphoorty Financial Ltd. has restarted operations in 794 of its 1,006 branches. This is the case as fortunately 79% of its branches are in Green zones. The micro-lender is also expecting to open the rest of its branches steadily after May 17 as it does not have any footprint in areas marked as Red zone.
Arohan Financial Services have also started opening up more than 40% of its branches. It has announced the opening of more after the lockdown is lifted.
Harsh Srivastava, CEO of the industry body, Microfinance Institutions Network (MFIN) said, “Our member MFIs are opening as many branches (as possible) in the green zones and preparing to scale in the orange zones depending on further directions from the MHA.”
Furthermore, he advised, “We want all MFIs to interact with customers and zero in on their credit needs and encourage them to pay back loans.” He added that MFIN has asked its members to interact with district and police authorities so as to not face challenges during resumption of operations. Gujarat government has yet to comply with the MHA order on essential services. So, the organization has requested the state government to allow MFIs to restart operations there.
MFIs are understandably looking to restart physical interest collections as only 30-35% of their loan repayments happen digitally.The hard fact remains that MFIs and NBFCs constitute the last-mile connect for a person’s credit needs. According to domestic rating firm ICRA, the cash shortfall of 29 MFIs, which account for 79% of the industry’s credit, is ₹2,600 Crore.