‘RBI’s Rs 16,000 crore special liquidity facility to Sidbi to help MFIs mitigate Covid-related challenges’

Alok Misra, CEO of MFIN, the umbrella body of MFIs, expressed hope that small and medium MFIs will be “prominently” covered under on-lending and refinancing facilities by Sidbi as the industry is facing disruptions in collections due to the second wave of Covid-19.

The microfinance industry on Friday said the Reserve Bank of India’s (RBI) decision to provide a special liquidity facility of Rs 16,000 crore to the Small Industries Development Bank of India (Sidbi) for on-lending and refinancing purposes will provide support to microfinance institutions (MFIs) to mitigate challenges arising out of the pandemic.

Alok Misra, CEO of MFIN, the umbrella body of MFIs, expressed hope that small and medium MFIs will be “prominently” covered under on-lending and refinancing facilities by Sidbi as the industry is facing disruptions in collections due to the second wave of Covid-19.

Industry bodies were, however, “slightly disappointed” because the RBI did not announce any measure on including microfinance institutions under the Resolution Framework 2.0.

“Over the last few quarters, large MFIs have been maintaining relatively higher liquidity on the balance sheet as a precautionary measure in a Covid-impacted environment. The special liquidity facility of Sidbi will further provide additional support to MFIs in general, but particular to small MFIs to manage their fixed obligations amidst disruption in collections on account of lockdowns during April and May 2021,” CreditAccess Grameen MD & CEO Udaya Kumar Hebbar told FE.

“Further, it will help the MFIs provide financing support to their customers and resume normalised disbursements once the lockdowns are gradually relaxed and economic activities start functioning in normal manner,” Hebbar said.

P Satish, executive director, Sa-Dhan, said the RBI in April provided a special liquidity facility of Rs 15,000 crore to Sidbi. “Providing a further special liquidity facility of Rs 16,000 crore is more in terms of enabling Sidbi to finance more innovative types of activities. Oveall this will help the principal financial institution increase its liquidity and that way it will be helpful for the microfinance sector,” he said.

According to Satin Creditcare Network chairman & managing director HP Singh, the central bank’s measures, such as the increase in limit of loans from Rs 25 crore to Rs 50 crore to small businesses and individuals under Resolution Framework 2.0, special liquidity facility to Sidbi and a separate liquidity window of Rs 15,000 crore for contact-intensive sectors, among others, will act as instruments spurring a rebound and strengthening India’s momentum towards normalcy.

The RBI, however, has still not included the MFIs under Resolution Framework 2.0. MFIN had earlier urged the RBI to provide a “restructuring window” for MFIs by including them under the Resolution Framework, which would help them mitigate the impact of Covid-19. According to the industry body, in current circumstances, it will become challenging for the small and medium MFIs to continue repayment to their lenders as microfinance clients are unable to pay during lockdown.

“We were expecting that at least some announcement will be there from RBI on providing a moratorium from lenders to MFIs or some kinds of restructuring facility. Without these kind of measures it will become a major problem for MFIs to provide further loans to their clients going forward. But it has not come. So, in a way we are slightly disappointed,” Satish said.