INSUBCONTINENT EXCLUSIVE:
Last October, when local pressure groups in Assam began demanding a ban on microfinance activities in the state, it seemed like a throwback
to the yesteryears for the veterans in the business.
The issue of over-indebtedness came back to haunt the industry exactly a decade after
the controversial Andhra Pradesh Microfinance Institutions Ordinance, which clamped down on unregulated lending by micro lenders
It all started with some borrowers defaulting, and that snowballed into mass defaults in five districts of upper Assam.
The Microfinance
Institutions Network (MFIN), the self regulator for the sector, found 7% borrowers in the state were over-indebted, over double the national
But the risk of higher indebtedness is growing following the influx of new set of lenders
of MFIN post demonetisation, taking the tally of NBFC-MFI members to 56
All of the new members may not necessarily be entirely new to the game, but the fact that they have enrolled themselves now shows that with
the impact of cash ban wearing out, they are trying to make the most in a business which offers unmatched returns.
BCCL - Non CopyrightA
FREE LUNCHLate last year, fresh trouble related to loan defaults surfaced in a couple of districts in coastal Karnataka, about 3,000 km from
the Brahmaputra and Barak valley
We have no control over them
We may only have control over the concerns regarding the possibilities of overlending
indebted borrowers, 24% have taken loans from more than three lenders
About 38% of highlyindebted customers have not taken a single loan from NBFC-MFI, 41% have single NBFC-MFI as lender, 19% have taken loans
Only 2% have more than two NBFC-MFIs as lenders.
Central bank rules say that not more than two NBFC-MFIs should lend to a specific borrower,
while there is no bar on the number of banks lending to the same borrower
The central bank has prescribed the micro loan limit by NBFC-MFI to a single borrower at Rs 1.25 lakh, but does not put any ceiling on
lending by banks or SFBs to the same borrower.
CHANGING CONTOURSThis raises doubts
Even as banks engaged in microfinance typically argue that they have stricter and stronger risk evaluation processes, but history teaches us
that there are chances of unregulated lending over the ?1.25-lakh limit if the rules do not consider the changing contours of
microfinance.
Banks have now taken the leadership in micro lending to women in joint liability groups accounting for 40% of the Rs
201,724-crore loan outstanding as on September last year
NBFC-MFIs are the second largest provider with 31% share while small finance banks and other NBFCs have 17% and 11%, respectively
Other MFIs account for merely 1% share.
Besides, there are semi-formal and informal money lenders who are also giving short-term credit to
Else, multiple lending and high indebtedness of borrowers will follow
Nambiar.
According to ICRA Ratings, the overall exposure to Assam by banks, SFBs, NBFCs and NBFC-MFIs has grown to around Rs 12,600 crore as
on September 30, 2019, while NBFCMFI has it at Rs 2,600 crore.
ASSET QUALITY-GROWTH TRADEOFFICRA said that the rapid loan book growth has
30+dpd remaining below 1% till September 30, 2019
However, the ongoing protests and political tensions seem to have impacted MFI operations substantially, with the share of overdue portfolio
January.
Lenders typically react by slowing down loan disbursement in the pockets of trouble
Ujjivan Bank has slowed new customer acquisition in Assam, Karnataka and also in pockets of West Bengal and is serving only repeat clients
But we are moving to a scenario where making false promises, confusing the gullible clients and creating an issue with repayment will be
microcredit which brings all lenders regulated by the RBI and also big not-for-profit entities under the same umbrella with a common minimum
What makes it more powerful is that when you sign, you get classified as a responsible lender and every quarter the designated credit bureau
future success of microfinance, which more often than not is subject to local level disturbances that gullible borrowers often fall for
Unfortunately, as the sector grows, lenders are getting preoccupied with lending and repayment collections, while the focus on awareness
prescribed measures to cleanse the sector
A revisit of the business parameters looks to be the order of the day.
