According to Jiji Mammen, ED, and CEO, Sa-Dhan, the microfinance industry may not witness the pre-pandemic levels of collection efficiency of about 99 percent levels as the entire landscape of microfinance lending in India has transformed. Recovery levels are likely to settle around 96-99 percent for the industry as a whole.

The collection efficiency of MFIs, which had witnessed a substantial reduction in the early part of 2020 following Covid-induced lockdown and an overall slowdown in the economy, has been witnessing steady improvement over the last one to two years. According to Mammen, the recovery rate has been improving. For all new lending done post the recent wave, the recovery rate is about 100 percent. But the lending done during the second wave has suffered and because of that overall recovery is down at 95-96 percent. While it may go up a little, it may not be possible to achieve the 99 percent level. It is likely to settle between 96 to 99 percent. According to him, self-regulatory organizations (SRO) such as Sa-dhan have to undergo a transformation and play more of a development role in the context of the recent changes in the regulatory landscape. RBI had just released its final guidelines for MFIs, which would apply to all entities, including banks, SFBs, and NBFCs engaged in the sector. Under the revised guidelines, regulated entities lending to the microfinance segment will have to ensure that loans are collateral-free and not linked with a lien on the borrower’s deposit account, repayment obligations are capped, interest rates are not usurious, and there is no pre-payment penalty. RBI has set a common household limit of ₹3 lakh for loans to qualify as microfinance, unlike the earlier definition that distinguished rural and urban households.

The highest possible indebtedness per borrower has been raised to ₹2.4 lakh. It has also done away with the margin caps specifically applicable to NBFC-MFIs.According to him, the new regulatory framework is a landmark event and is a laudable step by the regulator. While it gives a lot of freedom to entities, it also calls for a lot of responsibility on behalf of lenders and their boards. Interest rates can now be decided based on board policy. Though freedom has been given to the board to determine interest rates, SROs can keep an eye on and help ensure that they are not usurious. This apart, Sa-dhan is also working on coming out with a framework for risk management tools.