Banks have disbursed just 17% or ₹3,300 crore of the ₹20,000 crore credit guarantee scheme for microfinance companies, even as the extended deadline for the programme ends this month, according to reports from The Economic Times. The government has already extended the deadline once, from June 30 to August 31, but the slow uptake continues to limit the scheme's effectiveness in supporting the microfinance sector. Muthoot Microfin CEO Sadaf Sayeed noted that implementation needs some tweaking, citing challenges with banks needing to first lend 5% of the allocation to smaller MFIs before receiving a guarantee on the entire amount, making it difficult for banks to identify eligible smaller institutions.
Loan sanctions have been slow as banks exercise additional caution in lending to small non-banking financial companies-microfinance institutions (NBFC-MFIs), even as they need the assistance the most, as reported by The Economic Times. About ₹1,000 crore of the disbursed amount went to small and medium-sized MFIs, while the balance was allocated to large ones for onlending. Larger MFIs are somewhat reluctant to borrow under the programme, as they can secure funding outside the guarantee scheme with better terms. Muthoot Microfin has received the maximum ₹1,000 crore sanction under the scheme and expects disbursement soon, with Sayeed noting that some amount of tweaking in the regulation is required for the whole ₹20,000 crore to be utilized effectively.
The government has earmarked ₹3,000 crore for small and medium-sized MFIs and the remaining ₹17,000 crore for large ones with more than ₹2,000 crore of assets under management, according to The Economic Times. Microfinance companies can seek bank loans of up to 20% of their assets under management (AUM), subject to category-wise ceilings. The cap for small MFIs with less than ₹500 crore AUM is ₹100 crore, for medium ones with ₹500 crore-₹2,000 crore AUM it is ₹200 crore, and for large ones it is ₹1,000 crore. Muthoot Microfin has achieved the maximum allocation under the scheme and expects disbursement soon.
Loans extended by banks under the special scheme are partially guaranteed by National Credit Guarantee Trustee Company, which operates the government's various credit guarantee funds, as reported by The Economic Times. The trustee offers a partial guarantee of 70% of the amount in default for large NBFC-MFIs, 75% for medium-sized entities and 80% for small ones for a period of three years. Sources indicate that about 60 micro lenders have received bank loans under the guarantee cover, with 44 of them being small and medium-sized MFIs.
According to The Economic Times, Sa-Dhan executive director Jiji Mammen explained that bank lending under the credit guarantee scheme remains slow mostly because banks were trying to achieve their quota for small and mid segment ones. The reluctance of large MFIs to participate despite eligibility for the maximum ₹17,000 crore allocation, combined with banks' caution towards small MFIs who need assistance the most, continues to limit the scheme's effectiveness in supporting the microfinance sector. Muthoot Microfin CEO Sadaf Sayeed noted that the microfinance sector is still going through a challenging phase, with larger entities having enough liquidity while smaller entities don't have enough liquidity, making it difficult for smaller entities to access funding.
