The microfinance sector has clamoured for easy credit rating rules from banks for the micro lenders with less than Rs 500 crore portfolio so that these entities get adequate doses of bank loans to grow their businesses.
The small and medium sized micro lenders are gasping for bank loans as they don’t get bank loans as easily as their bigger counterparts with minimum Rs 1000 crore portfolio, even as the sector grew by nearly 25% in FY24 to a cumulative portfolio of Rs 4.3 lakh crore.
They urged banks to devise policies which support lending to entities with lower credit ratings.
“The banks typically offer loans to entities with minimum “A” rating while the micro lenders with less than Rs 500 crore portfolio don’t get such ratings either for their business size or for lower capital base. This is a major hindrance for growth for these units,” chairperson of the Association of Microfinance Institutions in West Bengal (AMFI-WB), Ajit Kumar Maity said Wednesday at a meeting with the country’s top lenders such as State Bank of India, IDBI Bank, Bank of Baroda.
The meeting was organised by the AMFI-WB to discuss the issues concerning the microfinance institutions, especially those headquartered in Kolkata.
“Micro lenders are not getting adequate bank loans across the country. The situation is almost the same everywhere,” Jiji Mammen, executive director at Sa-Dhan, a national industry body, told ET. The fund flow has been squeezed further after the central bank increased the risk weight for bank loans to non-bank lenders last November.
Senior bankers present at Wednesday’s meeting told MFIs to take the benefit of the existing government guarantee schemes to avail themselves of bank loans, which is the raw material for their business expansion.
“The smaller MFIs, mostly those with portfolio below Rs 1000 crore find it difficult to raise debt funds, from the mainstream lenders like banks and Financial institutions, because they are small in size that makes their rating also lower,” Sa-Dhan wrote to the finance minister last month, seeking a dedicated guarantee fund for the smaller MFIs.
The Small Industries Development Bank of India has recently unveiled a scheme which envisages double intermediation through it providing resource support to bigger entities for on-lending to relatively smaller and unrated / low rated MFIs engaged in financing ultimately targeted micro and small enterprises.
AMFI’s Maity also urged banks to offer longer term loans with at least 30 months maturity which would help the MFIs in their cash flow management better.
