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Background: After the lockdown, now the economic activities have started in a small way and at the outset, agricultural activities have been gaining momentum and Self Help Group members have started going to work. Govt also has opened up the opportunities under MNREGA. The demand for credit will go up from the SHG members in the days ahead. As the banks have to operate the processes in a new normal situation, SHG bank credit linkage program needs to be revisited and Self Help Group members should be trained to shift to digital mode in terms of all processes like Virtual SHG meetings, Virtual ratings, repayment through digital means and so on. Under this context, this new concept of Digital SHG 2.0 framework was developed and shared with the bankers. Suggestions have been made to build a supportive eco-system so that non-credit support services also will be made available to the banks, which will enable them to increase the credit flow to the SHGs.
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RBI to rescue by relaxing Bank rating norms ASAP!! 

Banks have been offered a liquidity support of Rs.50,000 crores by RBI for on-lending to NBFCs and MFIs. Out of this, Rs.5000 crore was earmarked for Small NBFC MFIs, those having assets size of less than Rs.100 crores outstanding. Even though the funds have been earmarked, it will not reach the most of the small MFIs as this funding will be only accessible to MFIs with  BBB bank rating, which most of the small MFIs may not have this investment grade rating. In Tamil Nadu, out of more than 40 small MFIs, only one MFI is having BBB rating. Moreover, RBI has asked the MFIs to give a 3 months moratorium to its clients, but many banks have not extended the same moratorium to MFIs.

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Lockdown is being relaxed and as economic activities started bringing people to a new normal, people need money now. Thanks to the efforts of RBI, which has injected liquidity through Targeted Long Term Repo Operations (TLTRO 2.0) and it will take more time to reach the poor as the Banks, NBFCs, and MFIs must collect the loan applications, make appraisals, take documentation and then disburse the money. Under this context, the use of Overdraft Facility under the Jan Dhan account must be harnessed.

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On 17th Apr 2020, RBI announced the TLTRO 2.0 (Targeted Long-Term Repo Operations), wherein it has set apart Rs.50,000 as refinance support to NABARD, SIDBI and NHB and Rs.50000 to banks for on-lending to NBFCs and MFIs.  I am surprised to note the poor offtake for the TLTRO 2.0 (Targeted Long-Term Repo Operations) offer of Rs.25,000 crore by RBI on 23rd April 2020 to the banks. The bids put in by banks were for Rs.12850 just,  half of the offer. Banks should come forward to use the TLTRO funds without hesitation to fund the NBFCs and MFIs especially small and medium MFIs which have the last mile connectivity to help the people at the Bottom of the pyramid.

Apart from pushing the loans through NBFCs and MFIs, they should also come out with special COVID loans to directly lend to SHGs (Self Help Groups).

COVID Hybrid loan

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On 17th Apr 2020, RBI has unveiled its package to improve the liquidity post COVID. Through Targeted Long Term Repo Operations 2.0 (TLTRO 2.0) it will make available Rs.50,000 crore to the Banks for supporting NBFCs and MFIs and out of the total Rs.50,000 crore, 50% of this should be given by banks to small and mid-sized NBFCs and MFIs. RBI has also allocated Rs.50,000 crore as special refinance facilities at repo rate (4.4%) to NABARD (Rs.25000 crore), SIDBI (Rs.15000 crore) and NHB (Rs.10,000 crore) for refinancing to RRBs, Co-operative banks and MFIs.

If the funds are to be used fully to benefit the microfinance clients at the bottom of the pyramid, the NEXT MOVE by the Banks, NABARD & SIDBI is crucial and the following aspects may be considered by them while formulating products to help the sectors.

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Background

The entire world is fighting against the spread of the pandemic “COVID-19” which has unfolded its impact on the economy and on the people of under-developed and developed countries. The World Health Organization has reported that the COVID-19 has spread to 175 countries affecting 17,10,799 people and causing 103,513 deaths so far. This level of disruptions to normal life is unprecedented in the last several decades. For the financial sector and especially for the microfinance sector, COVID-19 has emerged as a black swan event.

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1.Target right clients

Target people who are left out of mainstream banking/formal financial system, but who are having entrepreneurial spirits. They require a large amount of credit and they can use the credit more effectively for the purpose and generate incremental income.

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