Microfinance sector may see consolidation post COVID, say experts

Microfinance industry, which serves the unbanked, is likely to head towards the path of consolidation post-COVID 19, feel industry experts.  Micro lenders will also move towards digitisation of all processes for serving their customers who are going to see a change in their transaction habits, they said. A lot of people who are not here for the long-term or don’t have a very long-term vision of being in this industry and serving these (MFI) customers, will most likely find their way out. I would think that it also opens up some kind of path to consolidation in the industry,” Ujjivan Small Finance Bank managing director and CEO Nitin Chugh said during a panel discussion on the microfinance sector organised by CRIF High Mark, a credit bureau.

This microfinance industry will remain only for people who are invested, are following regulatory norms very seriously and have a roadmap ahead of them, he added. Sharing a similar view, Jana Small Finance Bank’s managing director and CEO Ajay Kanwal said, It probably is the moment where more people will think of consolidation and rightly so because having scale, capital, management depth, does make a difference. Clearly, I think there will be a lot of conversation around it. He said that post-COVID, digitisation will be a reality.

The most positive feature of the whole crisis is that we will move towards more digital approaches towards customers, banks and finance companies, which in a way will help a bit more of a formalisation and hence ability to give more credit to the underserved will become easy, Kanwal said.

He said the pandemic has given MFIs a bigger opportunity for growth because there is six months of pent up demand. There are people who want to start businesses and people have consumption needs that have been postponed, he added.

According to Manoj Nambiar, managing director of Arohan Financial Services and also chairperson of Microfinance Institutions Network (MFIN), the sector will see a surge in non-performing loans once the Reserve Bank of India’s moratorium on repayment of loans ends on August 31.

The industry is bracing up for the spike in delinquency which will happen due to dormancy or inactivity levels that exist. Also, the pandemic has impacted the bottom of the pyramid he said. He, however, feels borrowers from the bottom of the pyramid segment are resilient in terms of overcoming any crisis.