Assessing COVID’s Impact on the MFI Sector and Way Forward

This study examines the impact of COVID-19 and the associated lockdown in India on the operations and financial health of Microfinance Institutions.

Background

In the wake of the COVID-19 pandemic, the Reserve Bank of India has provided a Special Liquidity Facility to SIDBI to support the credit requirements of the MSME sector. Accordingly, special schemes are being launched by banks, NBFCs and MFIs to extend these benefits to the MSME sector. This study assessed the impact of the COVID-19 crisis and lockdown on NBFCs and MFIs, and the extent to which institutional relief measures provided by SIDBI enabled institutions to respond to the market changes. The study was conducted between November – December 2020.

Approach

An exhaustive literature review analyzing learnings and experiences from across the globe, specifically from India, facilitated the conceptualization of an assessment framework for the study. Given the time, travel, and logistical constraints due to COVID restrictions, the research methodology entailed a pragmatic approach, complete with a series of in-depth interviews with Bank/DFI/MFI leaders at various management levels, consultations with sector leaders/experts, including leaders from SROs, independent directors, founders of development institutions and analysis of financial and administrative data shared by these MFIs.

Implications

In the early days of the pandemic, plummeting repayment rates due to loss of household incomes and restrictions in travel during the nationwide lockdown threatened the economic stability of micro-finance institutions and other institutional lenders. In this context, this study provides valuable insights into how the prevailing policy interventions and financial measures enabled MFIs to cope with the crisis and continue their lending operations. Findings from the study can help improve the overall preparedness of the sector towards such unprecedented events in the future and enable a more robust and targeted policy response.

Thematic area

Financial Inclusion

Project Leads

Shailender Swaminathan

Partners

SIDBI

Status

Completed