Consolidation likely to happen in the microfinance sector post-COVID

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The microfinance sector will remain accessible only for those people who have a roadmap ahead of them and follow regulatory norms very seriously, according to an expert.

The most positive feature that emerged out of the COVID-19 crisis is that the industry will move towards more digital approaches. The industry experts feel that the path for the Micro Finance sector that serves the unbanked will lead to consolidation.

There will be a change in the transaction habits for customers, and the microlenders will also move towards the digitization of all processes, according to experts. The microfinance players who are serving the microfinance customers, who don’t have a long term vision in this industry or those who are not in this for the long run will most likely find their way out.

According to the CEO and managing director of Ujjivan Small Finance Bank, Nitin Chug, the microfinance industry will remain only for the people who have a roadmap ahead of them and are invested and are following the regulatory norms very seriously. This could likely open up a path for consolidation in the industry.

Consolidation in the industry will bring scale, management depth, and capital. The digitization of the microfinance sector will be a reality post the financial crisis due to COVID-19. The most positive feature of the COVID-19 financial crisis is that more digital approaches were taken towards financial companies, banks, and customers, which will help in formalization, and hence the ability to give more credit to the underserved will be easy.

The pandemic has provided microfinance institutions a great opportunity for growth because there are people who wanted to start a business and people having consumption needs, whose demand was postponed.

However, a surge in the non-performing loans will be seen in the sector once the Reserve Bank of India’s moratorium on repayment of loans ends on 31st August, according to Manoj Nambiar, who is the managing director of Arohan Financial Services and also the chairperson of the Microfinance Institutions Network.

The pandemic has impacted the bottom of the pyramid, according to Manoj Nambiar, but the borrowers of the bottom of the pyramid segment are resilient in terms of overcoming any crisis.

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