We have seen how banks have come to the assistance of the common people in the country during the pandemic. But a section of non-banking financial companies (NBFC), too, have come to the rescue of the bottom-of-the-pyramid residents by extending credits at a higher rate compared to earlier years, a Reserve Bank report reveals.
An analysis of the NBFC loan portfolio shows NBFCs have given out more short-term loans – loans that are payable within three months – after the pandemic and lockdown started compared to earlier periods.
Three-month window While the share of this short-term loans was 9.4% of the entire loan portfolio of all NBFCs in March 2020, it gradually rose to 10.3% in June, 11.6% in September and remained steady at 11.5% in December.
“An increase in the share of NBFCs’ loans in the less than 3- month bucket after the outbreak of pandemic indicates NBFCs’ role in facilitating short-term credit needs of the economy,” observed the report.
The RBI report went on to highlight that in the NBFC universe, microfinance institutions (MFI) are particularly instrumental in providing small-ticket loans to push forward financial inclusion.
Doubled Among the microfinance institutions (MFIs), the share of loans payable in 3 months almost doubled from 8.7% of the entire loan portfolio to 16.6% in the April-June 2020 quarter. It further rose to 18.8% in the second (July-September) quarter and eased a little to 16.4% in the third quarter (October-December), when the restrictions eased.
However, even in third quarter, it was almost double compared to January-March period of 2020.
3-12 months The share of the loans payable in the 3 to 12 months category also rose from 42.9% of the entire portfolio in January-March 2020 period to 50.5% in April-June 2020 quarter.
“An increase in the share of MFI loans in the less than 3-month bucket and 3-12 months bucket, particularly in Q1: 2020-21 (and continuing, in the case of less than 3-months loans), points to the crucial role they are undertaking in providing unsecured, short-term loans to small borrowers in the immediate aftermath of outbreak of COVID-19 to tide over short-term needs,” said the report published earlier this month.
Suffered Credit growth suffered in all categories of NBFCs with the exception of MFIs. Credit growth suffered particularly in the investment and credit companies and for those operating in the infrastructure financing space.
However, credit disbursal by MFIs grew at a faster pace compared to other categories though it slowed down a bit in the second and third quarter of 2020-21.
Bottom woes MFIs have been hit hard by the pandemic since their customers are residents of bottom-of-the-pyramid zone that is marked by the unorganised sector of the economy. This is a sector that has been hardest hit by the lockdown that has denied most of them avenues of livelihood.
Incidentally, most of the microfinance customers are women who typically run micro enterprises such as pisciculture, handicrafts, eateries etc.
Payback While there is dire demand for cash among these segments, the tiny businesses of most of the loanees stand devastated and most of them cannot revive unless they get new loan. However, unless they payback their earlier loans, they are not entitled to fresh loans.
According to data of industry body Microfinance Institutions Network, the outstanding loans of this sector stood at Rs 2.32 lakh crore in the third quarter of 2020-21.
According to reports, the average loan disbursement per account in the third quarter on 2020-21 of MFIs rose to Rs 34,070 from Rs 28,620 a year ago.
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