The eleventh edition of the quarterly publication by Small Industries Development Bank of India (SIDBI) and Equifax India, Microfinance Pulse, has revealed that the outstanding portfolio of the Microfinance Industry has registered Q-o-Q growth of 2% as of September 2021.The main objective of microfinance organizations is to give a chance to low-salary borrowers to become self-sufficient. This sector plays an important role in promoting inclusive growth by providing credit to borrowers who fall under BPL (Below Poverty Line) category. This industry is also helping women from rural areas to avail small loans at affordable rates to earn their livelihood.
Association of Microfinance Institutions West Bengal (AMFI-WB) organized the 6th Eastern India Microfinance Summit 2022 in Kolkata. The Theme of the Summit was ‘Reimagining Microfinance in Light of the Emerging Regulatory Paradigm’.
The conference was organized in the backdrop of the announcement of a new regulatory framework for microfinance in India, which was announced by the Reserve Bank of India in March 2022. This announcement marks a paradigm shift in regulations for the MFIs and recognizes their growing importance and maturity. It is expected that the MFIs would now be in a better position to serve their clients through well suited products for various segments.
The Industry has now weathered over two years of COVID 19 crisis, which has severely impacted the lives and livelihood of everyone. Lockdowns and resultant loss of income resulted in disruption of economic activity. The impact was particularly severe for the microfinance clients who had to face significant loss of income, being dependent on the informal economy to a large extent.
Microfinance Institutions supported their clients in these difficult times, extending much required moratorium on the repayment of installments to the clients. They also helped the clients in multiple other ways. The MFIs themselves faced unprecedented liquidity stress, but this has not deterred them from taking initiatives to enable their clients to rebuild their livelihoods.
The Microfinance institutions and their clients have displayed noteworthy resilience during the crisis. They were supported by suitable regulatory interventions and liquidity support from the government.
The crisis has helped MFIs to look at risks from a new perspective which will help in building resilient institutions. Adoption of technology in all facets of MFIs’ operations has helped them in increasing efficiency in improving sustainability. The focus now has to be on using technology to improve the experience clients have while accessing service. A fundamental requirement would be to ensure that technology related risks for clients are minimized and they have recourse to adequate grievance redressal.
With rapidly progressing vaccination coverage, we can now expect that the worst is behind us. These trying times have given MFIs the opportunity to better understand the clients and build lasting relationships with them. It is now time for them to use this understanding to tailor their product offerings in a manner that allows their clients not only to rebuild their livelihoods but achieve much greater financial success in the future.
This year’s session was attended by the MFI practitioners, regulators and funders to discuss most pertinent issues facing the sector.
Microfinance industry works on a crude principle of ‘Close Contact, Trust and Financing Sustainable Livelihoods’. On one hand it fuels micro and small enterprises; while on other hand generates employment opportunities in unorganized and organized sector.
In 2020, the lockdowns necessitated by the spread of COVID-19 brought almost every business to a halt, except essential services. The worst affected were enterprises with little or no reserves and high liquidity turnover operations, which was the case for typical micro and small businesses. This, in turn, adversely impacted their lenders: Prior to the lockdowns, many microfinance institutions (MFIs) still depended on physical interactions with customers, and door-step collections and disbursements. Their liquidity framework also depended heavily on steady cash flows — i.e., a stream of loan repayments from customers for upstream payments to banks and financial institutions from whom they had borrowed. When these MFIs faced a shutdown in collections and disbursements due to restrictions on mobility in the early months of the pandemic, the effect was devastating. By May 2020, nearly 98% of their accounts were under moratorium, confirming that the inflow of funds from these borrowers would not be forthcoming for the next three months. As they were already under pressure from their financiers to meet their obligations, these MFIs were crushed under liquidity issues.
Inaugural Session: The inaugural session has discussed the key issues around the main theme of the Summit to reimaging microfinance in light of the emerging regulatory paradigm. The key issues has discussed in this session includes
● How will the new regulations serve to enhance the cause of financial inclusion in the country?
● What will be the specific impact of these regulations on banks, NBFCs, BC Companies and not for profit companies?
● Will the new regulations enable enhanced capital flow in the sector?
● To what extent are the new regulations recognition of resilience displayed by the MFIs and clients during the COVID-19 crisis
● How will the MFIs be better equipped to deal with a COVID-19 like crisis, under the new regulatory framework?
Session 1: The New Regulatory Framework – opportunity to serve the clients better- The new regulatory framework announced by the RBI arguably brings the most significant changes in the regulations for the MFIs after 2011. It is already being acknowledged that the new framework recognizes the growing maturity and importance of the MFIs in financial inclusion. This also recognizes the growth, innovation and resilience displayed by the MFIs and their clients in the existing regulatory framework. Key topics has discussed by the participants in this session includes
● In what ways will the new regulations enable innovations in product development?
● In what ways the new regulations enable outreach to the underserved geographical areas or population groups?
● In what way will these regulations encourage adoption of new technologies?
● How can the clients be protected from the risks arising out of use of digital technology for doing transactions?
Session 2: Challenges of financial inclusion in Eastern India- Eastern India is home of over 50 microfinance institutions. The region is also densely populated with a large proportion of population engaged in agriculture and micro enterprises. Eastern India had proved their growth potentiality and repayment track record of micro finance clients over the past several years. High growth potential of microfinance in the eastern sector has also attracted MFIs from across the country. Most of the prominent MFIs in India have operations in Eastern India. This session has discussed the issues specific to the microfinance ecosystem in the Eastern India with focus on the following aspects.
● Economic growth, demand and market size
● Support from the government and local authorities
● Complementarity with government programs
● Law and order and physical infrastructure
● Portfolio quality related aspects
● Role of national level SROs (Sa-dhan and MFIN) in Eastern India
Session 3: Serving clients with diverse product offerings- Microfinance Institutions serve a variety of financial needs of their clients. While most of the loans have traditionally been provided to the clients for income generation purposes, the MFIs now offer a variety of cross-sale products for their clients besides loans for housing, education, water and sanitation and energy requirements. Varieties of insurance products are also being offered through the MFIs. In this session, among other things, the panelists has discussed the following important issues
● Building household level resilience through micro insurance products
● Making products more efficient and effective with more appropriate use of technology.
● Serving the missing middle segment through micro enterprise financing
● Promoting carbon reduction by encouraging use of solar products