Liquidity in Lockdown – Update 2: India’s SFBs & MFIs Coping With the Pandemic

Advisory Note 3 on the liquidity of small finance banks and ten largest NBFC MFIs in India

The moratorium for borrowers enabled by the Reserve Bank of India in response to the economic disruption of the lockdown has created challenges all along the micro-lending value chain.

This Advisory Note, covering microfinance institutions (MFIs) as well as small finance banks (SFBs),  estimates the magnitude of the liquidity shortfall for SFBs resulting from the current six-month moratorium. It shows that even with improvements in the microloan recovery rates during June 2020 investors and lenders will need to provide funds of the order of INR 300-3,300 crore ($40-$450 million) per SFB equivalent to 5-20 percent of the overall funds available to the SFBs not just to survive but also to revive their businesses after the moratorium period. Similarly, for MFIs there are liquidity shortfalls of INR 150-700 crore ($20-$90 million).  This is important ultimately to facilitate the livelihoods of the low income families they serve. 

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By Sanjay Sinha