This anticipated capital is 30-35% of the closing net worth as on March 31, 2020. ICRA said the MFIs would need the capital for growing at a rate of 15-20% pa over the next three years and absorbing high levels of anticipated credit costs during this period and maintaining prudent capitalisation levels.
With about 12% customers still not making repayments as on August 31, the rating firm expects the credit costs of MFIs to rise to 6-7% (spread over two years) from 1.5% in FY2020.
“Challenges for the MFI industry are likely to continue in the near term. Nevertheless, good on-balance sheet liquidity and capitalisation should help most entities to withstand the crisis though profitability indicators are expected to remain subdued over the next two years,” said Supreeta Nijjar, ICRA’s vice president and head for financial sector ratings.
The collection efficiency trends in the microfinance sector improved from April to September 2020, providing some relief to the pandemic-hit industry. The overall collection efficiency (total collections/scheduled demand unadjusted for moratorium) of the MFIs gradually improved and stood at about 88% at the end of September.
Their ability to further improve the momentum in the collection efficiency and manage the collections from the portfolio under moratorium would determine the ultimate credit costs.
Collection efficiency has been lower in Punjab and the eastern states such as West Bengal, Odisha, Assam and Bihar, on account of cyclones, floods and local lockdowns or unrest.
Barring a few like Satya MicroCapital or Sindhuja Microcredit, most entities put their plans to raise equity on hold in the first half of the fiscal amid economic disruptions. ICRA expects equity infusion to remain limited in the second half too.