India Ratings and Research (Ind-Ra) has maintained an overall negative outlook on the microfinance sector for 2HFY22. While the agency has maintained a Stable Outlook for large and strong sponsor backed microfinance institutions (MFIs), small-mid non-bank MFIs (including those with over 50% of assets under management in microfinance) continue to be on a Negative Outlook.
SFBs: Small bank banks; NBFCs: Non-bank finance companies
Assam Debt Waiver – Encouraging Discipline, but still a Waiver: The Assam debt waiver has been crafted to incentivise disciplined borrowers who have faced temporary cashflow problems but are not willing to default. For long-time defaulters, the plan envisages clearing of overdues and an incentive conditional to borrower behaviour becoming regular. While the MFIs operating in the region would probably see write-backs in their portfolio, this only partly addresses the larger problem of defaults post announcement/expectation of loan waivers especially in election times. In the rest of FY22, there could be elections in nine states/ union territories and hence MFIs operating in these regions might slow down disbursements.
Harmonisation Norms – Important but Need to Tread Carefully: Ind-Ra opines the proposed harmonisation guidelines are the need of the hour to address the diverse interpretations of regulations by the multiple forms of entities (mostly regulated) involved in microfinance. Under the draft harmonisation guidelines, Microfinance Institutions Network is trying to evolve a common income evaluation guidelines for NBFC-MFIs and other players in the segment such as SFBs, banks and NBFCs. In addition, the removal of caps on lending rates could provide small NBFC-MFIs some breathing space and the opportunity to have reasonable operating buffers. The caveat here is that in case the microfinance qualifying borrower income cap is high, the purpose of microfinance could be diluted and the group structure may not be cut out to withstand defaults on high indebtedness.
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