Pent-up demand to help micro-lenders: CEO of Northern Arc

Fernandes added that the recent policy direction from the central bank where it proposed to remove the current interest cap for microfinance institutions, if implemented, will create a level playing field and help stimulate the sector to as it emerges from the impact of the pandemic.

Since the past year and a half has been rather subdued, there is a lot of pent-up demand, Fernandes said.

“We’ll see all of this demand coming back, especially in the MSME microfinance space, you’ll see a lot more demand coming in. I think the supply chain is an important area for growth, and we might want to explore that as well. I think the opportunity in our existing businesses will also be a very exciting opportunity. So we will continue to build on that as well, ”Fernandes said.

She added that the collections are enjoying a strong recovery as most parts of the country are unlocking now.

“We are also seeing collections coming back. The resumption of collections this time, compared to the first wave, may be better. There is less confusion this time around than the last time you had a moratorium, ”she said.

Northern Arc Capital provides financing solutions to small and medium-sized businesses as well as lenders operating in microfinance, affordable housing finance, small finance banks, commercial vehicle finance, agrofinance and small business loans. .

It also lends directly to end customers via a co-lending model. Northern Arc provides loans and other structured debt products, including guarantees, to its clients. It also facilitates securitization transactions for its clients and generally invests in subordinated tranches.

The lender has seen its assets under management (AUM) grow by 20% during fiscal year 2021. Its AUM currently stands at ₹5,200 crores. The lender has a capital adequacy of around 29%.

Northern Arc Capital is backed by private investors such as IIFL Special Opportunities Fund, Leapfrog, Affirma Capital, Eight Roads, Accion and the Japanese multinational bank Sumitomo Mitsui Banking Corporation.

Fernandes welcomed the recent proposal by the Reserve Bank of India (RBI) to remove interest caps on microfinance institutions. MFIs may be free to set interest rates guided by a policy approved by the board of directors, as part of the recently published proposal to revise the regulatory framework that governs them. The proposal, if implemented, will end the existing regulatory cap on MFI interest rates.

“This provides a level playing field for a very important category of financial institutions which play a very important role in the whole history of financial inclusion, which is essential and very important for India. So, I think that this direction will only have a positive result for the microfinance sector. And more importantly, a very positive outcome for access to finance in India, ”she said.