Additional Rs 30,000 Crore Debt Funding To Smaller MFIs Likely In 2021-22: Report

The fresh restructuring window for loans up to Rs 25 crore is also likely to support the microfinance institutions sector in alleviating the additional asset quality stress arising due to COVID-19.

The recent relief measures announced by the Reserve Bank of India (RBI) are timely for the microfinance institutions (MFI) sector. According to a recent report titled 'Impact Note - MFI sector' released by the credit rating and research agency Acuite Rating and Research, an additional Rs 3,000 crore debt funding to smaller MFIs likely in the current financial year 2021-22. The fresh restructuring window for loans up to Rs 25 crore is also likely to support the microfinance institutions sector in alleviating the additional asset quality stress arising due to COVID-19. According to Acuite Rating and Research, the central bank's recent announcements on the special long-term repo operation or SLTRO of Rs 10,000 crore for the small finance banks will ensure higher direct disbursements to microfinance borrowers and better funding access for smaller MFI with asset size less than Rs 500 crore. The central bank's move to classify the small MFI loans from small finance banks as a priority sector is expected to boost the lending to the former segment. While the scheduled commercial banks have funded the large microfinance institutions, they have been reluctant to sanction the loans to those smaller in size. The agency expects that RBI's measure will lead to incremental funding to the sub Rs 500 crore microfinance institution segment to an extent of Rs 2000-3000 crore over the current financial year.