Mini-lockdowns may affect microfinance loan recovery: CRISIL

Livelihoods: Microfinance institutions (MFIs) may have a hard time recovering loans if more states decide to impose mini-lockdowns to curb the spread of COVID-19 infections, according to a report by rating and analytics agency CRISIL.

Maharashtra, which has announced a mini lockdown through April 30, is among the top five states in terms of assets under management of MFIs. As of December 2020, the state’s assets amount to approximately INR 16,700 crore, which is about seven percent of all microfinance loans in the country.

Pre-pandemic collection levels (the rate at which loans are recovered from borrowers) at MFIs stood at 98-99 percent. This reduced to 90-94 percent during the national lockdown imposed last year in March 2020. In the case of Maharashtra, it has been even lower at 85-90 percent. “If more states follow Maharashtra and impose mini-lockdowns of their own to curb the pandemic, and these continue for an extended period, (MFIs) PAR (portfolio at risk) recovery would be affected,” said the report.

However, unlike last fiscal, the disruption in economic activity due to the mini-lockdown is expected to be relatively moderate this fiscal with NBFC-MFIs being allowed to continue operations in Maharashtra, unlike last year. Since microfinance requires high personal connect, this comes as a big relief, said CRISIL.

Read this article on how to ensure nonprofit financial sustainability during COVID-19.

Fundraising & Communications: The Ministry of Home Affairs (MHA) has issued a circular extending the validity of FCRA registration certificates to September 30th, 2021. This applies to all FCRA licences that have expired or will expire between September 29th, 2020 and May 31st, 2021. The decision to extend the deadline has been driven by the exigencies arising from the COVID-19 situation.

FCRA refers to the Foreign Contribution (Regulation) Act 2010, which permits charitable organisations based in India to raise funds from foreign sources.

The order also clarified that nonprofits that have already opened an account and have the requisite permission to receive foreign aid, can henceforth receive it only in these newly-opened accounts.

The FCRA law was amended in September 2020 to include a clause that mandated that all nonprofits receiving foreign aid must necessarily open an account in State Bank of India’s New Delhi Main Branch. The government had initially set the deadline for this account opening as March 31st, 2021; it later extended it to June 30th, 2021 after several nonprofits argued in court that there had been delays because necessary approvals from MHA had not been received.

Several organisations have not been able to receive foreign funds during the crisis caused by the second wave, and this has impacted their COVID-19 relief efforts. Relaxing the foreign funding rules could significantly help organisations ramp up their operations to help individuals, supply critical healthcare equipment, and respond to communities in rural areas.

Read this article to know how amending the FCRA can have unforeseen implications.

Philanthropy & CSR: The Ministry of Corporate Affairs (MCA) has issued a circular that allows corporate spending on health infrastructure for COVID-19 care to qualify as corporate social responsibility (CSR) expenditure.

This includes setting up medical oxygen generation and storage plants, manufacturing and supply of oxygen concentrators, ventilators, cylinders, and other medical equipment to counter COVID-19.  

The announcement comes at a time when all efforts are being directed towards expediting efforts to support the country’s healthcare infrastructure.

According to the circular, companies can now undertake projects and activities in collaboration with other companies using CSR funds. Additionally, they can contribute to specified research and development projects, as well as publicly funded universities and certain organisations that conduct research in science, technology, engineering, and medicine.

The government had earlier clarified that setting up makeshift hospitals and temporary COVID-19 care facilities would also be considered a CSR activity. Rajesh Verma, the Corporate Affairs Secretary, has requested businesses to consider converting vacant office buildings into COVID-19 facilities to cater to the rapidly increasing caseload.

Read this article to understand why media attention on COVID-19 deaths due to lack of oxygen in big cities has skewed donor priorities.