NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, December 6, 2016

If you have your ear to the ground, you may hear 1.2 million employees of the Indian microfinance industry singing an old song of country-and-western singer and songwriter Jim Reeves:

Where do I go from here?

What fate is drawing near?

To use a cliché, the Rs65,000 crore microfinance industry has been in the doldrums, at least for the time being, in the aftermath of the ban on old Rs1,000 and Rs500 notes that accounted for 86% of the money in circulation in India or close to 11% of the size of Asia’s third largest economy.

Around 85% of the loan disbursements by the microfinance institutions (MFIs) and close to 95% repayment or collection of loans have traditionally been in cash. The sudden disappearance of the old notes and the slow replacement by new notes hit the industry hard in the second week of November when the so-called demonetisation came into effect.