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

Thursday, December 23, 2010

MUMBAI -The chief executive of the Indian Banks Association indicated Wednesday that banks will ensure microlenders remain fully funded in the short term to help them overcome temporary hiccups in repayments and maintain business as usual.

Microlenders typically fund their loans to their consumers though short-term loans from banks, leaving them vulnerable to temporary fluctuations in repayment patterns.

Bad loans in the Indian microfinance space have typically been as low as 0.1%-0.5%, but with the industry caught in an ongoing political maelstrom, default rates amongst borrowers are expected to rise.

“It (quality of loans to microlenders) is a matter of concern for banks,” K. Ramakrishnan told reporters after a meeting of bankers with the Reserve Bank of India, adding that microlenders and their stakeholders will have to work together to protect the interests of millions of microfinance customers.