It will not be preposterous to say that there is perhaps no other sector that has weathered crisis the way Microfinance has. Over the years, Microfinance Institutions have reinvented themselves every time a crisis hits them. Also, the Indian credit information system is far superior to what it was a few years ago. MFIN has been supporting and guiding the sector in overcoming these challenges.
As the microfinance borrowersrepresent low-income households, any unprecedented national happenings with a potential to have an economic impact on their lives, can be detrimental to the whole existence of the borrower. A few cases which needed careful handling were:
November 2016 and the period thereon were tumultuous for the NBFC-MFI sector with ground level implications that affected the smooth flow of the business seen over the previous years. Post the discontinuation of High Value Currency Notes (HCVNs) with effect from midnight of 8th November, the industry was thrown out of gear initially. This was to be expected in a sector which is 99% cash intensive and has a unique doorstep delivery model specifically for the unbanked and underbanked. MFIN identified the risk factorsand designed and developed strategies &policies to measure and mitigate risks that had severely impacted microfinance industry.
The first effort was reaching out to the concerned Ministries and RBI to allow the NBFC-MFI sector to collect old notes for a specified period with a suitable cap per borrower as a sizeable part of the borrower base was from peri urban or rural India where access to banking was low or unavailable.
Issues further aggravated with promises of loan waivers to borrowers. Despite this, a collection of 80%-85% during the period was demonstrative of the value micro credit had in the lives of borrowers. They were aware of the importance of strong credit histories and made their effort to repay the instalments.
MFIN engaged with State Governments at both the Ministerial level as well as the Bureaucracy, the RBI and extensive engagement with the press to quell the surge of disinformation regarding microfinance practices.
With the COVID-19 outbreak hitting the world hard, the pandemic stalled economic activities and India went into the world’s biggest lockdown to curb its spread. Microlenders faced disruptions as their operations is highly field intensive, including home visits, conducting centre meetings and physical collection of cash. A few days preceding to the lockdown witnessed microfinance institutions trying to place business continuity plans however, post lockdown challenges proved to be beyond operational level trying to gauge and minimize the impact.
Like most industries that were impacted, Microfinance was no exception with microlenders being the ones who faced extensive challenges during the crisis. Collections from borrowers had to be stopped with immediate effect .Though the Reserve Bank of India’s three-month moratorium provided them certain relief till 31st May which was further extended to 31st August, the perils of non-repayment of loans loom large when business resumes.
MFIN had to step up its work immediately after the lockdown as Members needed the support with immediate interventions. Simultaneously representations were made to the RBI, Regulatory Authorities, Government, and other stakeholders to seek their support in addressing key industry issues. MFIN took several steps to address the emerging challenges and mitigate the adverse impacts. Efforts were broadly around three focus areas - customer-protection, employee engagement and business continuity.
Be it local unrest by way of protests or agitation by people of vested interest, MFIN understands that interference in microfinance operations will be an impediment in the life of a borrower who is dependent on credit to build her livelihood. In such times, MFIN undertakes a series of engagements with key stakeholders such as Finance Minister of the State, Chief Minister, RBI, RO and SLBC Convener, DMs, LDMs, SSPs, representatives of agitating associations if needed and clients.
To address local issues, MFIN works closely with regional associations operating in the State to ensure that the combined efforts of the two help the sector and the borrowers. Moreover, in cases of pipelining by unscrupulous people or rouge elements impersonating as MFI staff or other frauds, MFIN takes up the matter with local authorities.
Spread of false rumours and assurance of loan waivers pose a serious threat to the credit bureau record of borrowers who stop repayment of loans in hope of the same. MFIN then undertakes local awareness campaigns to help the borrower understand the implications of non-payment and the need for credit discipline.
Borrowers in Microfinance come from an unserved community and generally belong to the bottom of the pyramid. Natural calamities can be devastating for the community. MFIN from its experience of handling natural disasters in various parts of India has developed a robust crisis management Standard Operating Procedure for its Members to deal with such catastrophes. Moreover, it is at times like these that the Microfinance community stands like a pillar of support to the borrowers. Be it cyclones or floods, Microfinance institutions arrange for safe, drinking water, food, grocery items, blankets, sarees or any utility item required by poor borrowers whose houses have been lost in the calamity.
Keeping the impact of such catastrophes on the Members, MFIN is also working towards designing the ‘NatCat insurance solution’ which will enhance the financial stability of its members and increase the trust of the stakeholders. The product will protect the portfolio of MFIs against potential risk of defaults by the customers facing financial stress during extreme catastrophe events. At the same time, it will strengthen the creditworthiness of customers in the long run. The insurance will cover across four risks namely flood, drought, earthquake, and cyclone.
MFIN, with the support from GIZ and WRMS, has finalized the product with Swiss Re being the insurer while Cholamandalam MS as the primary insurer. The product document is at present beingfinalized for filing with IRDAI for approval.