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Banks Shun Small MFIs Despite Rs 20k Crore Guarantee
28 Jun
Summary
- Rs 20,000 crore credit guarantee scheme shows limited success.
- Banks remain hesitant to lend to smaller, low-rated MFIs.
- Smaller MFIs seek government intervention for better funding access.
A significant Rs 20,000 crore credit guarantee scheme in India, intended to boost lending to smaller microfinance institutions (MFIs), has fallen short of its goals. Banks are reportedly hesitant to lend to these institutions due to concerns about their creditworthiness, even with a substantial 80% guarantee against defaults. Industry executives have noted that this objective has not been met.
The Credit Guarantee Scheme for Microfinance Institutions (CGSMFI) 2.0, launched in March and extended to August 31, offers varying levels of default coverage. However, as of June 10, only Rs 770 crore had been sanctioned. Banks' lending policies often prioritize institutions with investment-grade credit ratings (BBB+ and above), a standard many smaller MFIs struggle to meet following sector-wide stress and rating downgrades.
Industry bodies have approached the finance ministry for intervention, highlighting that directives encouraging lending to lower-rated entities, as seen in past schemes, are absent this time. The microfinance sector has faced prolonged pressure from borrower overleveraging and regulatory recovery restrictions, impacting asset quality. Despite recent sequential growth in the gross loan portfolio, funding access remains a critical challenge for smaller players, with efforts underway to address these persistent issues.
