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Sa-Dhan seeks government support for its members

Microfinance industry association Sa-Dhan has pleaded with the government to ensure liquidity for its members, as the raging second wave of corona pandemic has raised the risks of tight funding from banks.

In a letter to finance minister Nirmala Sitharaman, Sa-Dhan has suggested extension of the government’s partial credit guarantee scheme for bank loans on micro lenders to the extent of Rs 10,000 crore with Rs 2,000 crore being earmarked for small and medium MFIs.

Last year, the government had announced a partial guarantee of up to 20% of first loss to state-owned banks for purchase of bonds or commercial papers of NBFCs, MFIs and housing finance companies having a credit rating of AA or below, including unrated paper with original maturity of up to one year.

The microfinance industry association believes that a government guarantee on bank loans would be much more effective to ensure credit flow.

“There is a need for increased credit flow from banks – from both public sector and private sector banks – to the MFIs in view of the recurrence of the pandemic,” Sa-Dhan executive director P Satish said in his letter to the finance minister.

“An emergency credit line facility in the form of a pre-approved sanction limit of up to 25% of the loan outstanding may be extended to MFIs by all banks,” said the letter dated April 28, 2021.

The Reserve Bank of India has already extended a special liquidity facility to National Bank for Agriculture & Rural Development, Small Industries Development Bank of India and National Housing Bank to the tune of Rs 25,000 crore, Rs 15,000 crore and Rs 10,000 crore respectively in the current financial year.

Sa-Dhan has requested the finance minister to allocate Rs 10,000 crore from Nabard and Rs 7,000 crore from Sidbi for the microfinance sector.

“Nabard and Sidbi should liberalise their norms and conditions of refinancing to ensure a greater funds flow to MFIs,” the industry body demanded. They can adopt only grading norms instead of rating to help the MFIs with portfolios below Rs 200 crore assess the fund, it said.

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