In the run-up to the Union Budget in 2024, the microfinance industry has urged the government to facilitate additional funding, especially for entities with portfolios below Rs 1,000 crore.
“Government may consider creating a guarantee fund for the smaller MFIs with NABSANRAKSHAN, the subsidiary of Nabard, or NCGTC of Sidbi, which can extend guarantee cover for the borrowing of MFIs from banks and financial institutions,” Jiji Mammen, executive director and chief executive officer of Sa-Dhan, said. He added that an initial allocation of Rs 1,000 crore could be set aside for this purpose.
Additionally, a dedicated refinance facility of Rs 30,000 crore could be established under the aegis of the Small Industries Development Bank of India (Sidbi)or the National Bank for Agriculture and Rural Development (Nabard) for on-lending to NBFC-MFIs at a lower cost.
According to the latest data from MFIN, the assets under management of microfinance institutions rose nearly 30% year-on-year (y-o-y) to almost Rs 1.6 trillion as of March 31. Microfinance-focused non-banking financial companies dominate the market with a portfolio share of around 39%.
Currently, microfinance institutions operate in 27 states and five Union territories. In terms of regional distribution, the east, northeast and southern states account for 59% of the total NBFC-MFI portfolio.
However, industry players note that while many non-governmental organisations (NGOs) and development institutions work towards financial inclusion, efforts should be made to upgrade some of these NGOs into microfinance institutions by infusing adequate capital and strengthening their management, systems, processes, and human resources.
Here, industry players feel that a fund can be created to infuse equity into NGOs to help them transform into NBFCs. A fund of around Rs 250 crore can be housed in development finance institutions like Nabard.
While the portfolio at risk (PAR) for over 30 days improved to 3.4% as of March 31, down from 3.9% a year ago, industry players acknowledge that unrest in Manipur has disrupted the functioning of microfinance institutions in the state. The unrest has impacted borrowers’ ability to repay loans, causing MFIs to default to their lenders and hindering their ability to raise funds for further lending. In such a scenario, the government may consider extending long-term interest-free loans to MFIs in Manipur to help rebuild the economy.
“If direct loans to MFIs are not possible, a dedicated fund can be created at the North Eastern Development Finance Corporation, in the form of a grant fund, or an interest-free/low-interest kind of fund,” Mammen said, adding that an amount of Rs 200 crore may be earmarked for this purpose.
Separately, Satin Creditcare Network chairman and managing director HP Singh suggests that the government should consider offering tax relief on profits earned from developing and building affordable housing projects.“
To incentivise developers to build more affordable housing, the government should consider reintroducing the ‘100 Percent Tax Holiday’ benefit previously available under Section 80-IBA of the Finance Act, 2016,” he said.