Introduction: This year's East India Microfinance Conference is being organized in the backdrop of the announcement of a new regulatory framework for microfinance in India, which was announced by the Reserve Bank of India in March 2022. This announcement marks a paradigm shift in regulations for the MFIs and recognizes their growing importance and maturity. It is expected that the MFIs would now be in a better position to serve their clients through well suited products for various segments.
The Industry has now weathered over two years of COVID 19 crisis, which has severely impacted the lives and livelihood of everyone. Lockdowns and resultant loss of income resulted in disruption of economic activity. The impact was particularly severe for the microfinance clients who had to face significant loss of income, being dependent on the informal economy to a large extent.
Microfinance Institutions supported their clients in these difficult times, extending much required moratorium on the repayment of installments to the clients. They also helped the clients in multiple other ways. The MFIs themselves faced unprecedented liquidity stress, but this has not deterred them from taking initiatives to enable their clients to rebuild their livelihoods.
The Microfinance institutions and their clients have displayed noteworthy resilience during the crisis. They were supported by suitable regulatory interventions and liquidity support from the government.
The crisis has helped MFIs to look at risks from a new perspective which will help in building resilient institutions. Adoption of technology in all facets of MFIs' operations has helped them in increasing efficiency in improving sustainability. The focus now has to be on using technology to improve the experience clients have while accessing service. A fundamental requirement would be to ensure that technology related risks for clients are minimized and they have recourse to adequate grievance redressal.
With rapidly progressing vaccination coverage, we can now expect that the worst is behind us. These trying times have given MFIs the opportunity to better understand the clients and build lasting relationships with them. It is now time for them to use this understanding to tailor their product offerings in a manner that allows their clients not only to rebuild their livelihoods but achieve much greater financial success in the future.
This year’s session is expected to be attended by the MFI practitioners, regulators and funders to discuss most pertinent issues facing the sector.
Microfinance industry works on a crude principle of ‘Close Contact, Trust and Financing Sustainable Livelihoods’. On one hand it fuels micro and small enterprises; while on other hand generates employment opportunities in unorganized and organized sector.
In 2020, the lockdowns necessitated by the spread of COVID-19 brought almost every business to a halt, except essential services. The worst affected were enterprises with little or no reserves and high liquidity turnover operations, which was the case for typical micro and small businesses. This, in turn, adversely impacted their lenders: Prior to the lockdowns, many microfinance institutions (MFIs) still depended on physical interactions with customers, and door-step collections and disbursements. Their liquidity framework also depended heavily on steady cash flows — i.e., a stream of loan repayments from customers for upstream payments to banks and financial institutions from whom they had borrowed. When these MFIs faced a shutdown in collections and disbursements due to restrictions on mobility in the early months of the pandemic, the effect was devastating. By May 2020, nearly 98% of their accounts were under moratorium, confirming that the inflow of funds from these borrowers would not be forthcoming for the next three months. As they were already under pressure from their financiers to meet their obligations, these MFIs were crushed under liquidity issues.
The inaugural session will discuss the key issues around the main theme of the Summit to reimaging microfinance in light of the emerging regulatory paradigm. The key issues discussed in this session will include
The new regulatory framework announced by the RBI arguably brings the most significant changes in the regulations for the MFIs after 2011. It is already being acknowledged that the new framework recognizes the growing maturity and importance of the MFIs in financial inclusion. This also recognizes the growth, innovation and resilience displayed by the MFIs and their clients in the existing regulatory framework. Key topics discussed by the participants in this session will include
Serving clients on a sustainable basis requires building resilient institutions which can withstand various risks facing them. Microfinance institutions have focused on adopting effective corporate governance to strengthen their institutional resilience. An effective corporate governance framework helps in building confidence of all stakeholders including clients, staff, regulators and funders. In this session the panelists will discuss the structures, practices and tools for strengthening corporate governance. Specific aspects will include
Microfinance Institutions serve a variety of financial needs of their clients. While most of the loans have traditionally been provided to the clients for income generation purposes, the MFIs now offer a variety of products for their clients such as loans for housing, education, water and sanitation and energy requirements. Variety of insurance products is also being offered through the MFIs. In this session, among other things, the panelists will discuss the following important issues
