Kamal Ghorui
The government has approved a limited-period Rs 20,000-crore credit guarantee scheme aimed at easing fund flow constraints faced by microfinance institutions (MFIs), according to a PTI report.The Credit Guarantee Scheme for Microfinance Institutions-2.0 (CGSMFI-2.0) will cover loans disbursed by member lending institutions (MLIs), including banks and other lenders, to non-banking finance company-MFIs and MFIs till the end of June, government-run National Credit Guarantee Trustee Company (NCGTC) said in a circular.MFIs, which largely cater to borrowers at the bottom of the economic pyramid, have been facing challenging conditions due to a rise in non-performing assets (NPAs), making lenders cautious about extending fresh exposure.According to the circular, MLIs will extend funding to MFIs or NBFC-MFIs based on their internal assessment for onward lending to eligible small borrowers. Certain conditions have also been prescribed on lending rates.To qualify for benefits under the scheme, the interest rate on loans sanctioned by MLIs to NBFC-MFIs/MFIs will be capped at the External Benchmark Lending Rate (EBLR) or the one-year marginal cost of funds-based lending rate plus two per cent.In addition, MFIs will have to lend to small borrowers at a cost at least one per cent below the average lending rate charged during the previous six months.The scheme also stipulates a maximum loan tenure of three years, including a one-year moratorium followed by a two-year repayment period. Further, MLIs are required to ensure that at least five per cent of the total loan amount under the scheme is sanctioned to small MFIs with assets under management (AUM) of less than Rs 500 crore, while 10 per cent should be allocated to mid-sized institutions with AUM between Rs 500 crore and Rs 2,000 crore.“The maximum amount of loan which can be sanctioned by MLIs to NBFC- MFIs/MFIs shall be capped at 20 per cent of AUM of respective NBFC-MFI/MFI subject to a maximum of Rs 100 crore to small size, Rs 200 crore to medium size and Rs 300 crore to large size NBFC-MFIs/MFIs,” the circular said.Microfinance Institutions Network (MFIN), the industry’s self-regulatory body, welcomed the measure, calling it a timely intervention that could help improve liquidity conditions.“The sector has demonstrated strong improvement in credit quality and adherence to responsible lending practices. The key constraint has been the availability of bank funding,” MFIN chief executive and director Alok Misra said.
