Business plunges as the economy is now saddled with mostly Rs 2,000 notes, which small rural borrowers hardly use
It’s not just banks whose regular operations have been disrupted due to demonetisation, but microfinance firms too.
Lending has come to a near standstill and disbursals are not likely to restart in any meaningful way before Saturday, said Bandhan Bank chairman Chandra Shekhar Ghosh.
Microfinance lenders provide a crucial support to the rural economy and their plight would continue for some more time as the economy is now saddled with mostly new series of Rs 2,000 notes which small rural borrowers hardly use.
“Disbursements by microfinance institutions have come to a total halt. They have stopped since the first day of currency ban came into effect and will remain affected till Saturday. Even if we get Rs 2,000 currency note, we can’t disburse it as my customers don’t have any use of it,” Ghosh told reporters on the sidelines of a seminar organised by industry body CII on goods and services tax.
“We usually disburse about Rs 100-125 crore daily. We are not getting that kind of cash for disbursal,” he added.
The woes of MFIs have gone up with Reserve Bank of India telling that they can’t accept the banned currencies.
Microfinance Institutions Network (MFIN), the industry body for such lenders, had earlier requested the RBI for clarification on whether they can accept the old Rs 500 and Rs 1,000 notes as repayments by borrowers.
“MFIs can’t accept those currency notes as they are not banks,” Ghosh said, although Bandhan, now being converted into a bank, can accept such currency notes.
The aggregate supply of micro-credit in the economy is valued at about Rs 50,306 crore with 67 NBFC/MFIs registered with RBI, according to MFIN which claims a membership of 53 such outfits.
This figure excludes Business Correspondent portfolios of banks channelled through NBFC–MFIs which stands at Rs 2,450 crore.
Bandhan, which accounted for 25% of the industry portfolio, is no more counted technically as an MFI though a majority of its loans are still to this sector.
Even repayments of instalments of small loans have got affected. “If someone comes to repay Rs 300 as instalment, we can’t give that MFI customer Rs 200 in exchange if she comes with a Rs 500 note. Customers won’t prefer advance instalment also as for them every rupee counts,” Ghosh said. While Bandhan can accept the old notes, other pure MFIs can not.
As a result, collection for the microfinance industry, which is about Rs 600 crore a week, has almost stopped. “With new Rs 100 and Rs 500 notes entering into the system, things are expected to normalise soon,” Ghosh said.
Other MFIs have suffered the same fate. For Arohan Financial Services, disbursal is happening only to those big borrowers for whom the money is directly transferred to bank accounts. But that’s not even 30% of the total portfolio of the MFIs.
For Village Financial Services, collections have gone down by 60% while cash disbursal is now nil.
“For every Rs 100 collected, Rs 50 used to go towards repaying loans obtained from banks while the remaining would be circulated as disbursals. But now, we are collecting Rs 60 and of that Rs 50 is going towards repaying bank loans,” said Kuldip Maity, MD, Village Financial.
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