Mumbai, March 20 The government on Friday approved a limited-period Rs 20,000-crore credit guarantee scheme to aid microfinance institutions (MFIs), which have been complaining about difficulties in accessing funds.
The Credit Guarantee Scheme for Microfinance Institutions- 2.0 (CGSMFI-2.0) will cover loans disbursed by member lending institutions (MLIs), including banks and other lenders to non-banking finance company-MFIs and MFIs until the end of June, the government-run National Credit Guarantee Trustee Company (NCGTC) said in a circular.
It can be noted that the MFIs, which serve people at the bottom of the pyramid, have been facing challenging times due to a surge in non-performing assets (NPAs), which has, in turn, made their lenders wary of extending further exposure.
The NCGTC said MLIs shall provide funding to the MFIs or NBFC-MFIs, as per their assessment, for on-lending to eligible small borrowers and also put certain conditions on interest rates.
To qualify for the benefits under the credit guarantee scheme, the interest rate on the loans sanctioned by MLIs to NBFC-MFIs/MFIs is capped at External Benchmark Lending Rate (EBLR) or 1-Year marginal cost of funding based lending rate plus two per cent, it said.
Additionally, the MFIs' lending to small borrowers has to be done at a cost of 1 per cent below the average rate of their lending in the last six months.
Other conditions include having a maximum loan tenure of three years, which includes a one-year moratorium and two years for loan repayment. Also, the MLIs need to ensure that at least 5 per cent of their total loan amount under the scheme is sanctioned to MFIs classified as small-sized with less than Rs 500 crore of assets under management, 10 per cent to midsized ones (Rs 500-2,000 crore of AUM).
"The maximum amount of loan which can be sanctioned by MLIs to NBFC- MFIs/MFIs shall be capped at 20 per cent of AUM of respective NBFC-MFI/MFI subject to a maximum of Rs 100 crore to small size, Rs 200 crore to medium size and Rs 300 crore to large size NBFC-MFIs/MFIs," the circular said.
Microfinance Institutions Network (MFIN), a self-regulatory body for the industry, welcomed the move as a timely intervention to address the challenges faced by the sector, which will help unlock liquidity.
"The sector has demonstrated strong improvement in credit quality and adherence to responsible lending practices. The key constraint has been the availability of bank funding," MFIN's chief executive and director Alok Misra said.
It's peer SRO Sa-Dhan also welcomed the announcement, terming it as a significant step towards strengthening the microfinance sector and deepening financial inclusion across the country.
Domestic rating agency Icra's co-group head for financial sector ratings A M Karthik said the scheme will also benefit retail borrowers through lower interest rates provided by MFIs which will avail loans under the scheme.