MFIs see gradual ramp-up in collections: ICRA

New Delhi, July 21 Even though impacted by economic turmoil due to Covid-19, the country's microfinance institutions or MFIs have reported better-than-expected collection efficiency in June 2020, rating agency ICRA said on Tuesday.

This came to the fore in an ICRA study with a sample size of 21 MFIs, which together constitute around 70 per cent of the industry except for the small finance banks.

"The easing of the lockdown restrictions has enabled domestic MFIs to re-establish their connect and convince a large number of borrowers to start paying their instalments as it will be cost-effective for them," the report said.

"Based on discussions with industry players, borrowers in the rural areas engaged in agricultural, dairy, and allied services have performed better than borrowers from other industries."

According to the study report, for most MFIs, especially those with a sizeable presence in rural areas, the collection efficiency has improved to 40-70 per cent in June 2020 compared with a cumulative collection efficiency of less than 10 per cent in April-May 2020.

"Given the people-centric model followed by the MFIs, concerns on continuity of business operations in the field came to the fore," the company said in a statement.

"Further, the Reserve Bank of India's (RBI) moratorium on term loans for March-May period, which was later extended to August 31, led to negligible collections by MFIs from their borrowers in April-May 2020."

On the other hand, the report pointed out that MFIs faced several delays in getting approval for a moratorium from their lenders and the uncertainty continues, albeit at lower levels, for the Phase 2 from June 1 to August 31.

Besides, ICRA's sample analysis found that the liquidity on the balance sheets of most of the MFIs is not sufficient to meet their debt-servicing obligations and operating expenditure during June-September period.

"The MFIs had unencumbered cash/liquid investments of around 11 per cent in relation to their assets under management (AUM) as on May 31, 2020. This metric was around 10 per cent for the similar sample as on March 31, 2020," the analysis report said.

"However, if one were to look at the MFIs based on the rating category, the ratio for entities in the 'BBB' and below rating category was less than half of the ratio for the entities in the 'A' and above rating category, indicating the stronger on-balance sheet liquidity available for the latter."

( With inputs from IANS )