Assam's microfinance relief scheme is a “positive development” from an asset quality perspective and the relief provided is expected to reduce near-term loan losses for lenders, who were affected by the Covid-19 pandemic.
Assam’s microfinance relief scheme is a “positive development” from an asset quality perspective and the relief provided is expected to reduce near-term loan losses for lenders, who were affected by the Covid-19 pandemic.
“The scheme rolled out by the government of Assam has been structured in a way to incentivise regular borrowers and meet the demand of the stressed borrowers. It also aims at discouraging lenders and borrowers from over-leveraging. This is a positive development from an asset quality perspective. The relief provided is expected to reduce the near-term loan losses for the lenders, who were affected by the pandemic,” said Sachin Sachdeva, vice president and sector head, Financial Sector Ratings, ICRA.
Sachdeva said the operationalisation of policy, however, would be a challenge as multiple lenders have exposures to borrowers. “Further, making borrowers understand the eligibility criteria would be difficult, which may impact the repayment behaviour of non-eligible borrowers,” he told FE.
The collection efficiency dipped drastically in Assam after the state Assembly had passed the Microfinance Institutions Bill, 2020, in December last year and talks of a possible waiver of microloans ahead of the elections. There had been delays in repayments from the borrowers, and because of the confusion over the type of the proposed relief package people were holding back payments.
“The funding of the scheme will happen in mid-August after the Assembly is expected to approve the budget announcements by the end of July,” two persons familiar with the matter told FE.
On Monday, during a virtual press conference on the Assam relief package, MFIN director and CEO Alok Misra said the collection efficiency is expected to return to normalcy within three months as after the announcement of the scheme borrowers have started to contact with the lenders on repayment matters.
Manoj Kumar Nambiar, MFIN chairperson, said: “The relief measure has focused on responsible borrowing, responsible repayment and responsible lending. We sincerely thank the government’s efforts to continue the flow of credit to the low-income households in these difficult times.”