Performance of microfinance institutions during the COVID-19 pandemic: evidence from Indian states

Abstract

The microfinance sector has played a vital role in economic development and financial inclusion in India. However, with the COVID-19 pandemic affecting economic activities, microfinance institutions (MFIs) were impacted adversely. The Government of India introduced a moratorium to borrowers for loan repayments. This study examines the impact of the government’s initiative of easing borrowers’ financial burdens and the number of active COVID-19 cases on the operational efficiency of MFIs in Indian states. Additionally, the analysis explores the macro-economic determinants of MFI performance. The study incorporates the random effects robust regression model. The findings suggest that interest rate and inflation impact every MFI performance criterion while national income only affects the loan penetration efficiency of MFIs. It is also found that the moratorium significantly helped borrowers, whereas, it had adverse effects on the loan penetration by MFIs. Lastly, it is shown that MFIs remained resilient to COVID-19 cases, except in the case of reduced number of borrowers.