Tag: microfinance

Varun Chopra, Eduvanz, BFSI News, ET BFSI

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-By Tarika Sethia & Ishan Shah

The ed-tech boom in India has grown multi-fold in the last two years and Varun Chopra of Eduvanz, funding education and skill seekers believes the time is good and the focus will be on tier-2, 3 & 4 cities.

Varun Chopra, Co-founder & CEO at Eduvanz believes that banks have slightly burnt their fingers in financing higher education loans and Eduvanz found a space to fund students who are looking to do courses in domestic universities in India.

Varun said, “The idea was that how everybody is creating financial entities around a certain specific sector or product like an auto loan, property loan, microfinance, etc. We wanted to be the lender for learners.”

Pandemic Impact

The pandemic has accelerated Eduvanz’s growth journey. Some of the key drivers Varun sees is the New Education Policy 2020 and UGC Policy where degrees can be given online which has never happened before in India. So students who are sitting out of tier 2,3,4 cities, now don’t have to come to Bombay and Delhi to get educated, backed by the high penetration of the internet across India.

Eduvanz sanctions loans to these students and becomes one point of contact. It also launched no-cost loans where students can buy laptops, mobile phones at 0% interest.

Varun said, “0% is just a small behaviour change of another way of buying products and paying later. So just like BNPL is picking up in the consumer sector. We’ve created products like study-now-pay-later. So this SNPL product is really making a difference for both the consumer and the education institutes because for educational institutes it is helping them meet the demand of the students and increasing their enrollment and for students, it is at zero cost, it’s very beneficial.”

The average ticket size is around Rs 1.8 lakh and the average tenure of 18 months, but it starts lending at as low as Rs 20,000 to Rs 25,00,000. It has tied up with over 200 universities across countries.

Courses in demand & Risks

Varun highlights that courses and skill sets related to the BFSI, Analytics, Digital Marketing, Blockchain are in demand and students are trying to build their careers in these sectors. A big shift is also being seen in how work from home has benefited these students to pursue courses beyond working hours.

Varun adds, “Employment is backed by quality education and skillsets. Most of these educational courses are also becoming hybrid today. Some of these models are becoming very effective and that is where the boom in education learning is happening in India.

25% of the borrowers are introduced to educational institutes where they don’t have any tie-ups. While they may not get a 0% loan but are able to get their education financed at a cheaper cost, explains Varun.

It has brought down its exposures which are impacted by the pandemic also with institutes where placements have gone down and there’s an employability risk which is determined by its internally created score called ’employability score’.

BFSI, IT & Technology are the key drivers for now.

Impact on Existing book

Varun said, there has been an impact but luckily we were part of the impact-based lending. So we have partnered with Michael Susan Dell foundations, where we get the coverage if the borrower is not able to pay back. However, our portfolio is extremely solid.

It claims that they are one of the best performing fintech with NBFC license with NPAs less than 0.7% in spite of two phases of severed Covid-19 waves. He added, “We have reduced a little bit of exposure on each impacted sector. We have tweaked how much exposure some of the institutes we can take. To be honest, I think we have been fortunate enough because most of the borrowers get employed. Even if there is a delay in getting employed, these guys have been able to kind of repay back over a period of time.”

New Avenues

Eduvanz has also started financing school fees for which it acquired a company called ‘clarity’ last year. It provides students mentorship and industry guidance. Varun said, “We are creating an entirely digital platform around it, where we have partnerships at schools and colleges. Students can talk to these industry veterans and understand good career opportunities and options.”

It has also partnered with companies like Apple to finance study-related equipment where borrowers may want a laptop to do their education. Varun adds, “So there’s a lot of focus on creating a whole lender for learners, not just finance a part of their education, but anything related to their learning, whether it is in mobile devices, insurance, laptops.”

We are lenders for learners: Varun Chopra, Eduvanz

In the last four years, it has collected huge amounts of data on institutes, sectors, consumers, employment trends which has enabled them to create innovative products.

In terms of credit demand, Varun said, “ In the last four months we have constantly hit the highest. There is an extreme amount of demand and we are disbursing close to Rs 40-45 crore per month, and we are planning to reach Rs 75 crore in two to three months. So that’s the immediate target.”

Fundraise & Growth

Eduvanz is looking for a series-B round closely and will be more like a growth capital to build strong technology infrastructure and products and create a strong distribution model for learners.

Varun adds, “The ed-tech boom has led to a new kind of quality education turning up and no sector has grown without the availability of finance, every sector is to be pushed by the financial sector. Being somewhere where we were one of the first ones, we hope to carry this torch of growth in upcoming times.”



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Microfinance sector hit as defaults surge in pandemic

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Small loan specialists in India that typically cater to people without bank accounts are facing a jump in pandemic-related defaults that could force some of them out of business, industry experts warn.

Loans overdue by 30 days are expected to reach 14-16 per cent of all so-called microfinance loans in the immediate aftermath of the second Covid-19 wave sweeping India, said Krishnan Sitaraman, senior director at credit rating agency Crisil.

That’s higher than 6-7 per cent in March, before the second wave took hold, and also above the 11.7 per cent reached in March 2017 after the demonetisation drive — an attempt to boost digital transactions and crack down on undeclared money that also hit microfinance lenders hard.

ALSO READ MFIs need bold policy support

“Older loans that were taken in 2019 or early 2020 are at a higher risk of defaults and they form about 60-65 per cent of the loanbook for lenders,” said Harsh Shrivastava, former head of the Microfinance Institutions Network, an association representing the sector in India.

Rahul Johri, chair of Vector Finance, a microfinance firm that provides loans to small enterprises, said many support measures brought in by the government had only helped larger institutions, while smaller players had struggled.

“It has become an existence issue for several small and mid-sized microfinance institutions as business has been severely impacted and collections are down,” said Johri.

Loan collection efficiency across the total loan pool has fallen to about 70 per cent from a peak of nearly 95 per cent in March, analysts say, indicating a potential build up in stress.

The gross loan portfolio of India’s microfinance lenders stood at ₹2.6-lakh crore ($35 billion) as of March 31, according to Crisil.

ALSO READ NBFC-MFIs: Sector sees nearly 25% decline in FY21

Bumpy road ahead

Despite the short-term challenges, some remain bullish on the sector and expect it to bounce back if an anticipated third wave is not so severe.

“About 55 per cent of the market is still untapped which means there is huge market opportunity … so things will look up soon,”said Johri.

But for now, many smaller microfinance firms are struggling.

Such companies, typically with loan books of less than ₹5-lakh crore ($67 million), have also seen their cost of funds rise by 100-150 basis points as banks and companies have become less willing to lend to them, said one industry executive, speaking on condition of anonymity.

Some microfinance firms have had to scale back capital raising plans due to tepid interest from investors, said the heads of two firms that have been looking to raise funds.

As smaller players falter, some have stopped paying salaries, or incentives to employees in recent months, they added, asking not to be identified due to the sensitivity of the matter.

“We are now only getting basic salaries, incentives have completely stopped in the last few months as collections are down,” said a collection agent.

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Assam govt to waive MFI loans for poor women: CM Himanta Biswa Sarma

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Assam Chief Minister Himanta Biswa Sarma on Friday said that he was committed to his election promise of providing relief and incentives to poor women who had taken loans from various Micro Finance Institutions (MFIs).

The government has been holding continued discussions with MFIs, following which the outstanding loan amount has been brought down to ₹8,250 crore from 12,500 crore and this will benefit 22 lakh poor and deprived women of the State, the Chief Minister said at a press conference here.

The outstanding loan has come down as MFIs had flouted the norms set by the Reserve Bank of India (RBI) and these include giving a loan of over ₹1.25 lakh to one group or giving more than one loan to one person or group, he said.

During discussions, it was decided that any loan amount over ₹1.25 lakh would be waived and if there are four outstanding loans against an individual, the fourth loan’s principal and interest amount will be waived, Sarma said.

These measures have brought down the outstanding amount and will go a long way in helping the poor and needy women.

“I had said in all my elections meetings, while campaigning for the BJP, that the loan waiver relief will be for the poor women and not for the middle class or the rich”, he said.

Three groups

The State government has decided to categorise the borrowers in three groups with the first being those women who are paying the loans regularly, he said.

“These women should continue to do so that their CIBIL score is not affected and the government will reward these prompt payers with a one-time incentive,” he said.

The second category are those women who have an overdue, meaning that those who were paying regularly but now has an overdue as they have stopped paying after they heard that the loans will be waived.

“I appeal to this category of women to resume repaying their loan and the goverment will repay the overdue amount,” he said.

In the third category, are those women who have no plans to take any further loans or engage in any further activity and the government will provide them with full relief.

The women taking full waiver will, however, not be able to take any further loans in the future.

Altogether 26 lakh customers with 45 lakh bank accounts have taken loans from 40 lenders with 53 per cent of this amount lent by banks, 22 per cent by Non-Banking Finance Companies (NBFCs) and microfinance institutions, 26 per cent by small finance banks and 16 per cent by regular NBFCs.

The Chief Minister had decided to set up a committee to study the financial implications of waiving off the loans in the first cabinet meeting of the new Council of Ministers held on May 11 with Guwahati Development Department Minister Ashok Singhal as the Chairman and Principal Secretary of Finance and Panchayat and Rural Development as members.

The Chief Minister had directed the committee to prepare a package to provide relief to maximum poor women who had taken loans and are facing immense miseries.

It has been decided that only those loans will be considered which were taken before December 31, 2020 and those with family income of ₹1 lakh, paying income tax, owning four-wheelers or any other such guidelines set by the RBI will not be considered for waiver of loans.

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NBFC-MFIs: Risk of protracted delinquencies remains, says CRISIL

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A hit to the collection efficiency of microfinance institutions (NBFC-MFIs) owing to protracted Covid-19 curbs will increase asset-quality pressures in the sector, with loans in arrears for over 30 days likely to cross the surge in the aftermath of demonetisation (DeMon), cautioned CRISIL Ratings.

With loans in arrears for over 30 days – or the 30+ portfolio at risk (PAR) mounting, the MFI sector is expected to resort to restructuring of loans to a larger extent than last fiscal as this is perhaps the only practical option to support borrowers and not let accounts slip into the non-performing bucket, the credit rating agency said in a note.

CRISIL Rating assessed that the 30+ PAR could rise to 14-16 per cent of portfolio this month from a recent low of 6-7 per cent in March. This number had surged to 11.7 per cent in March 2017, in the aftermath of demonetisation.

“But unlike last fiscal, when loan moratorium helped keep delinquency increases at bay, more MFIs are likely to opt for permitting restructuring under the Reserve Bank of India (RBI)’s Resolution Framework 2.0 announced last month, and continue with higher provisioning,” CRISIL Ratings said.

Ground level challenges

Krishnan Sitaraman, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings, observed that the medical impact of the second wave of the pandemic has been much worse than the first wave, and afflictions have percolated to the rural areas too.

“Ground-level infrastructural and operational challenges, as well as restrictions on movement of people, have impinged on the MFI sector’s collection efficiency.

“Though overall collection efficiency is expected at 75-80 per cent in May, compared to 90-95 per cent in March, pressure on asset quality would be higher as borrowers do not have a blanket moratorium this time, while their cash flows have been impacted by the second wave,” opined Sitaraman.

Considering the current ground-level challenges, the note emphasised that encouraging collections through the digital mode is imperative for MFIs – the way they have transitioned to cashless disbursements.

Restructuring, Delinquencies & Provisioning

With 30+ PAR mounting, CRISIL Ratings is of the view that the demand under restructuring 2.0 could be in high-single digits compared to 1-2 per cent seen during restructuring 1.0 for the overall sector.

“Yet, the risk of protracted delinquencies eventually leading to credit costs staying elevated, remains.

“For one, borrowers’ track record of repayment ability is yet to be established for already restructured portfolios. Two, lack of prudence is also a possibility,” the note said.

CRISIL estimates that close to half of the total assets under management (AUM) of NBFC-MFIs of about ₹80,000 crore as on March 2021, were generated from December 2020 onwards.

Given the relatively vulnerable credit profiles of borrowers and the fact that local economic activity is yet to normalise, sustainability of collections, especially for the recent disbursements, will be the key monitorable in the coming quarters, it added.

Ajit Velonie, Director, CRISIL Ratings, said: “To be sure, NBFC-MFIs have created provisions (including a special Covid-19 provision in the fourth quarter last fiscal) estimated at 3-5 per cent of the AUM as on March 2021.

“Considering the likely rise in delinquencies and restructuring, higher-than-normal provisioning is warranted even in the first half of this fiscal to absorb the shocks.”

NBFC-MFIs with adequate liquidity, lower leverage, or those backed by strong parentage, will be better placed to withstand the current situation, he added.

According to CRISIL Ratings, large MFIs rated by it are either backed by strong parentage with access to capital, or have comfortable capitalisation with gearing at about 3-3.5 times, which should allow them to withstand the stress.

They also have the liquidity to cover over two months of debt repayments – even after assuming nil collections – because disbursements have been low, too, which has helped conserve cash.

Nevertheless, the trajectory of recovery, access to incremental funding and capital position will bear watching, especially of the smaller MFIs, the agency said.

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Challenging year stares at microfinance sector: Ind-Ra

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India Ratings (Ind-Ra) said a sequential challenging year stares at the microfinance sector, with the impact of the credit costs on account of the second wave expected to be higher in the annual financials for FY22 than FY21.

The credit rating agency reiterated a Stable Outlook for large MFIs and a Negative Outlook for the rest for FY22.

With the second wave penetrating rural markets, Ind-Ra estimated collections for microfinance institutions (MFIs) and small finance banks (SFBs) to have declined 3-5 per cent in April 2021 and additional 5-7 per cent in May 2021 (first fortnight of the month), both on a month-on-month basis, as states implement stricter measures to manage the second Covid wave.

The agency expects the overall microfinance sector to witness a shortfall of 10-15 per cent in collections on a consolidated basis in May 2021.

“That being said, the variation among MFIs could be wider, depending on their level of concentration in regions where lifting of restrictions could be slow,” said Amit Rane, Senior Analyst, in a note.

Ind-Ra, in its microfinance outlook had estimated credit costs for MFIs to be in the range of 3-8 per cent in FY21 on account of the first Covid first wave as collections picked up in the pre-Covid portfolio and normalised for post September 2020 originations.

Portfolio deterioration

The agency observed that the incidence of most of the relevant provision will also fall in FY22, given that the bulk of the second wave portfolio deterioration would happen at the beginning of FY22.

As a consequence, the impact of the credit costs on account of the second wave would be higher in the annual financials for FY22 than FY21 and possibly even the demonetisation crisis; where credit costs were spread over three years as the event occurred at end-3QFY17 and the regulator provided forbearance for NPA recognition, it added.

Funding access critical

Ind-Ra believes smooth access to funding and liquidity would be critical for the microfinance sector.

It assessed that for most large MFIs (assets under management (AUM) above ₹5000 crore or MFIs that are part of large groups), bank funding lines etc. could continue and hence they may not face immediate liquidity stress.

Recently, the regulatory announcement of special long-term repo operations of ₹10,000 crore for SFBs and categorisation of lending by SFBs to MFIs under priority sector lending (for loans to MFIs of AUM ₹500 crore and less) is a step to ensure flow of liquidity to small MFIs, Ind-Ra said.

However, as per Ind-Ra’s analysis the portfolio of SFBs and their lending to MFIs with AUM of less than ₹500 crore billion is marginal.

Ind-Ra expects mid and small MFIs to continue to face challenges in fund raising and / or borrowing costs.

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Motilal Oswal PE buys minority stake in Fincare Small Finance Bank for about ₹185 crore

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Motilal Oswal Private Equity (MOPE) has picked up a minority stake in Fincare Small Finance Bank for $25 million (about ₹185 crore) through a secondary acquisition. The deal provides partial exit to True North Fund V LLP, one of the key investors in the firm.

The deal was done by India Business Excellence Fund–III, a fund managed and advised by MOPE, it said in a statement.

Vishal Tulsyan, Managing Director and CEO of MOPE, said: “Over the past decade microfinance has established itself as an asset class with potential for high growth and profitability. Based on our assessment, a small finance bank is the best platform to capitalise on this opportunity.”

“Fincare has established itself as a pioneer in this space with its focused approach towards efficient last mile distribution of financial products and services. The enormous white space available for retail banking in India combined with the strong execution capabilities of the Fincare management team makes this partnership quite exciting for us,” he added.

Fincare Small Finance Bank is a Bengaluru-based MFI-NBFC turned small finance bank. Before converting into a small finance bank, the microfinance lender was largely conducting business from two entities – West India based Disha Microfin and South India-based Future Financial Services.

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ICRA: Uncertainties with rising Covid cases could compound NBFCs woes

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The resurgence of the Covid-19 pandemic is likely to impact the performance of assets under management of retail NBFCs in 2021-22, rating agency ICRA said on Wednesday.

“Domestic Retail-NBFC AUM are facing asset quality headwinds which will moderate growth in 2020-21 and is also likely to affect their performance in 2021-22, following resurgence of the Covid-19 pandemic,” it said in a statement.

Higher loan losses seen

Asset quality pressures would play out fully in this fiscal as the level of economic activities are yet to substantially pick up over the pre-Covid levels, with risks further compounded by recent rise in infection rate, it further said.

While NBFCs can proceed with the overdue recoveries post lifting of the Supreme Court order on the NPA classification in March 2021, ICRA notes that performance of most of the key target asset and borrower segments continues to be sub-optimal, which would impact realisations leading to higher loan losses.

“Entities have augmented their provisions steadily since the fourth quarter of 2019-20 and are currently carrying provisions of more than 50 per cent of the pre-Covid levels, the same is expected to be maintained at least for a few more quarters in view of the current uncertainties,” it said.

AM Karthik, Vice President, Sector-Head Financial Sector Ratings, ICRA, said, “Restructuring expectation averages around 2.6 per cent (ICRA sample of large NBFCs) presently and we expect reported Gross Stage 3 to increase steadily by about 50-100 basis points (over December 2020 levels) by March 2022, as a base case; and could inch-up further if the impact of the pandemic continues for longer period leading to lockdowns or other tighter restrictions.”

Revival in growth

ICRA expects the Retail-NBFC AUM, which is estimated to be about ₹10-lakh crore as of December 2020, to have grown by three to five per cent in 2020-21 as pent-up demand, post the lockdown, led to some revival in segments such as namely gold, microfinance, two-wheelers, and tractors.

In 2021-22, growth is expected to revive to about eight per cent to 10 per cent driven by improvement in demand from all key target segments compared to last fiscal.

Growth, however, would be contingent upon access to adequate funding lines, it further said, adding that the capital structure is expected to remain adequate.

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Study, BFSI News, ET BFSI

Personal Finance

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by Syed Fasiuddin

Microfinance disbursements in the second quarter of the financial year spiked by 380% over the previous year, as normalcy crept in day-to-day life in urban & rural centres of the country following stringent lockdowns, revealed a report by CRIF.

Disbursements in rural centres increased from Rs 3,634 crore to Rs 17,407 crore between the two quarters, whilst urban centres disbursements stood at Rs 12,311 crore, from Rs 2,539 crore earlier. The figures however stood at a stark decline from the same period a year earlier, where disbursements stood at Rs 32,903 crore in rural parts and Rs 25,796 crore in urban parts, respectively.


The share of banks in disbursals between the first and second quarter of FY21 in disbursals decreased from 67.81% to 50.58%; whilst NBFC’s roared with their share increasing from 8.07% to 29.07%. Small Finance Banks (SFBs) also posted a lower share in disbursals from 20.08% to 12.84% between the first and second quarter of FY21.


The average ticket size in micro loans also grew quarterly by 1.4% to Rs 34700, whilst also posting a yearly growth of 6.7%. Movement was also noted in the ticket size, which in the first quarter of FY21 were focussed mainly on loan sizes of lower than Rs 20,000, occupying 60% of share, whilst in the second quarter was dominated by loans of more than Rs 40,000.

Geographically, the eastern region dominated the microfinance segment with a share of 34.7%, whilst southern and western parts held a share of 26.3% and 14.6%. The northern, central and north-eastern parts recorded a market share of 10.5%, 7.7% and 6.9%, respectively.

The average exposure per borrower increased by approximately 20% and 14% in West Bengal and Tamil Nadu, whilst also recording an increase of 12% in Karnataka. Separately, Tamil Nadu also had the highest share of borrowers, standing at 8.9%, of individuals who had loans with four or more lenders. Karnataka and Bihar retained second and third spots in individuals with four or more loans.



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