Contact Your Financial Adviser Money Making MC
16
November 2016
 |
| Microfinance (The Total Investment & Insurance Solutions) |
Micro finance institutions (MFIs) like Bharat
Financial Inclusion Ltd -BHAF (erstwhile SKS Microfinance) are facing severe
cash crunch, which is hurting their collections and disbursement. However, it
is too early to conclude that there will be high loan defaults or weakening of
credit culture in MFIs, says a research note. The Total Investment & Insurance Solutions
In the report, Morgan Stanley, says,
"MFIs such as BHAF disburse almost 100% in cash and also collect in cash.
Hence, discontinuation of large denomination currencies (86% of cash in
circulation) hurts both collections and disbursements. While there will likely
be rise in over dues, unless the cash crunch extends beyond two months (ending
in mid-January 2017 i.e., the next reporting quarter), we are unlikely to see
non-performing loans (NPLs) technically." The Total Investment & Insurance Solutions
The NPLs at Bharat Financial is on a 60 days
past due (dpd). Despite the present situation, Morgan Stanley says it sees the
MFI to maintain its efficiency in collection and disbursement. "With
respect to credit culture, unlike the Andhra Pradesh (AP) MFI crisis, there is
no conflict vis-a-vis the government. Further, even when the non-AP loan book
was being wound down during second quarter of FY11 to first quarter of FY13,
the company saw a collection efficiency of 97%. Key risk-mitigating factors are
also sensitivity to credit score by credit bureaus and the fact that credit
from informal channels is likely to be difficult in the near to medium
term." The Total Investment &
Insurance Solutions
According to the report, earning impact on
BHAF would be limited assuming stable asset quality. "We assume
significant loss of business in F2Q17, with the focus mainly on collections. If
we assume that disbursements are flat to down 50% vis-à-vis the recent run rate
of 50-60%, FY17 earnings per share (EPS) is likely to be impacted by 5-10%,
without giving the benefit of a potential much higher growth in F417," it
added.
 |
| Microfinance1 (The Total Investment & Insurance Solutions) |
Morgan Stanley feels BHAF is better positioned
than other non-banking finance companies (NBFCs) with a high share in cash
collections. It says, "BHAF disburses via the joint liability group (JLG)
mechanism with a low average outstanding per borrower of about Rs16,500.
Occupational activities being carried by borrowers are also very basic in
nature, with less sensitivity to the economy. While these loans are unsecured,
there is significant social collateral, owing to the group-lending mechanism –
thus there is good distribution of risk. There is also sensitivity to credit
score, given significant credit bureau coverage." The Total Investment & Insurance Solutions
Other NBFCs take relatively much larger
credit risk on individuals with a better economic background but also with a
weak credit profile. Loans are collateralised, but sensitivity to credit
bureaus and social pressure is relatively low, whereas sensitivity of
borrowers' earnings to economic trends is high. Also, with MFI loan instalments
per borrower being much smaller (Rs300-500 per week) against Rs10,000-Rs30,000
per month for other NBFCs, the situation is more manageable with currency of
lower denomination. Further, as normalcy in cash flows returns, repayments from
MFI borrowers will likely pick up faster, Morgan Stanley added.The Total Investment & Insurance
Solutions
No comments:
Post a Comment