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a) The Reserve Bank of India has asked the microfinance institutions to adopt responsible lending practices to ensure that loan amounts are commensurate with the borrower’s ability to repay and that there are no instances of overlending.
b) Building capital buffers and managing liquidity would be crucial for MFIs in fortifying their balance sheets against coronavirus-led disruptions, said RBI’s September bulletin. It has been suggested that MFIs should learn from the past and diversify their portfolio across geographies due to recurring localised disruptions.
c) It further said that though the pandemic presents new challenges and significant financial risks for the microfinance sector, it also presents an opportunity to build long-term resilience.
f) The central bank has an unparalleled focus on the MFIs as they are specialised institutions extending collateral-free loans to low-income groups and are particularly exposed to credit risks.
g) The article said that microfinance in India plays an important role in delivering credit to people at the bottom of the economic pyramid. Also, owing to its grass-roots level connect, microfinance is able to support income-generating activities and impact livelihoods in both rural and urban geographies.
h) Meanwhile, the outstanding amount of loans extended to microfinance borrowers, grew from Rs 1.79 lakh crore as on March 31, 2019, to Rs 2.32 lakh crore as on March 31, 2020. NBFC-MFIs and Scheduled Commercial Banks (SCBs) hold a major chunk of the microfinance portfolio, with a combined share of 72 per cent as on March 31, 2020.
i) The remainder is held by Small Finance Banks (SFBs), NBFCs, and others (including not-for-profit MFIs).