India’s SFBs and the Growth Pangs of the Pandemic

Analysis of the last three years’ balance sheets of the eight microlending small finance banks (SFBs) shows that the expected delinquencies and defaults in the microfinance sector resulting from the lockdowns caused by the COVID-19 pandemic, are unlikely seriously to challenge their solvency. However, with likely delinquencies in excess of 10 percent by March 2021, a few will need to take action to maintain their capitalization.

Previous M-CRIL Advisory Notes indicated the need for $940 million in additional funds for SFBs. This analysis adds nuance to that calculation; M-CRIL estimates that $175 million will need to be in the form of equity leaving $765 million to be raised as debt to ensure that SFBs not only remain solvent but also grow at the current 35 percent rate over 2019-20. Since SFBs are the strongest set of institutions serving micro-borrowers this situation means that other parts of the sector will have more severe challenges to overcome.

M-CRIL plans to publish an update as soon as 2019-20 information for the 10 largest MFIs becomes available.