Increased demand for credit guarantee schemes in the microfinance industry, as well as challenges resulting from the epidemic

The microfinance sector has written to Finance Minister Nirmala Sitharaman requesting that she enhance the credit guarantee scheme’s cap in the forthcoming Budget 2022. In its proposal to the Finance Ministry about the budget for the fiscal year 2022-23, the self-regulatory authority of the microfinance sector, ‘Sa-Dhan,’ stated that this sector had a high cost of credit and a low cost of long-term funds. confronted with access difficulties. The sector need government assistance in such a circumstance.

According to P Satish, Executive Director of Sa-Dhan, microfinance is critical for boosting growth and consumption. However, the tiny microfinance institutions’ status has deteriorated significantly throughout the epidemic time. In light of the sector’s issues, he stated that the budget should include an extension of the sector’s loan guarantee programme.

 

According to him, the epidemic has impacted the capital of small MFIs, and he encouraged the government to assist them with subordinate loans for a five- to seven-year term. Additionally, the SRO recommended that NABARD establish a Rs 1000 crore microfinance development fund for the purpose of providing financial support to non-profit MFIs.

 

Microfinance institutions are what they sound like.

Microfinance institutions are lenders. These businesses provide minor loans and savings plans. It makes inexpensive loans in accordance with the RBI’s and the central government’s directives. These businesses were established to provide low-interest loans to rural and small-town residents. These businesses contribute significantly to rural and agricultural development. The RBI refers to these businesses as microfinance firms since they are incorporated under the Companies Act 1956 and have less than five crores in total assets.

 

Stagnant debt of 20,000 crores

Micro credit organisations appear to be trapped with loans totaling roughly 20,000 crore rupees. Businesses will have a tough time recouping their losses on this loan. Approximately 5% of borrowers are tourist and education-related businesses. In these industries, business has not yet resumed normalcy. The introduction of Kovid’s Omicron version appears to be boosting the complexity of these areas. As a result, debtors may postpone repayment of their loan even longer.

 

Small company owners are aided

Let us remind you that the government already extended the Credit Guarantee Scheme for Small and Medium-Sized Enterprises (CGSSD) until 31 March 2022 for troubled MSMEs and loans. On June 1, 2020, the government authorised this plan to give loan facilities to promoters of distressed micro, small, and medium-sized companies (MSMEs). It began on 24 June and is expected to last until the end of the year.

 

The government has agreed to prolong the plan for an additional six months beyond 30 September 2021 in response to demands from scheme stakeholders. This initiative will now run through March 31, 2022. The government has already resolved to prolong this plan by six months, from 31 March to 30 September 2021.