Saying that microfinance institutions (MFIs) are better equipped than banks to disburse loans under the government’s special credit facility for street vendors, microfinance lenders’ umbrella body Sa-Dhan has urged finance minister Nirmala Sitharaman to set up of a dedicated fund of `3,000 crore in Mudra for this purpose.
Last week, the government unveiled Rs 5,000-crore special credit facility for street vendors. Under this scheme, a vendor can get initial working capital up to Rs 10,000. Sitharaman had said this scheme would support nearly 50 lakh street vendors.
“As much as 45% of the borrowers of MFIs are from the urban and semi-urban areas, which works out to about 20.46 million, of which nearly 31% are street vendors. As such MFIs are best suited to implement this credit facility. Sa-Dhan has already initiated talks with DAY-NULM and the housing ministry,” Sa-Dhan executive director P Satish said in his letter to the FM. “Banks will have to start from scratch to give loans to street vendors. They will have to find out who these borrowers are, but MFIs are already with them. We know their credit history as well,” Satish told FE.
“Once the lockdown is lifted, we can start disbursing the loans. MFIs are already operating in green zones. The only drawback is their financial position, they need a credit line so they can start disbursement. That is why we have requested the FM to set up at least Rs 3,000-crore fund in Mudra,” he added.
“I don’t know how can a proper KYC be done for a street vendor. It is very difficult. A vendor may be selling vegetables or fruits or flowers on a street, but he may not have a proper residential address. We will wait for the government to clarify,” a senior official with a state-run bank told FE.
Microfinance industry bodies expect the special liquidity and the partial credit guarantee schemes announced by the government to increase liquidity for the NBFC-MFIs in the medium term. While the special liquidity scheme is likely to help large MFIs, the partial credit guarantee scheme would help medium and small-sized MFIs.
“The partial credit guarantee scheme will help small and medium-sized MFIs. As the government is guaranteeing, banks will be interested in buying the papers of some small and unrated microfinance firms. MFIs will get money at cheaper rates. Then they will be able to sustain their operations and lend more to customers. But it will not happen immediately. This is a medium-term plan of the government,” MFIN CEO Harsh Shrivastava said.