Crisis Looms in Southern India’s Microfinance Sector

Thursday, April 6, 2017

Trouble for the Rs 57,000-crore microfinance sector is brewing again with drought-hit Karnataka, the largest MFI market with about 14% share, emerging as the new stress point with non-payment of dues.

There are repayment concerns also in some smaller pockets of Tamil Nadu, two persons familiar with the development said. As many as 20 NBFC-MFIs, including all the large ones, operate in Karnataka, which is otherwise a mature market for microfinance activity.

“Fresh challenges have emerged in Karnataka and parts of Tamil Nadu,” analytical form CrisilBSE 0.52 % said in a recent report.

Ratna Vishwanathan, chief executive of Microfinance Institutions Network (MFIN), the self-regulator for NBFC-MFIs, agreed, saying the drought in North Karnataka has impacted loan repayment capacity of women borrowers. Although MFIs don’t give farm loans, consecutive droughts have affected the repayment capacity at the household level.

The government has released Rs 1,712 crore and Rs 1,236 crore for Tamil Nadu and Karnataka from its disaster management fund as farmers from both states was seeking relief, battered by the consecutive droughts.

“There is crisis in some pockets, especially in North Karnataka, where political interference has also created trouble for the sector,“ said Rajeev Yadav, chief executive of Fincare-Disha, which has 40% of its portfolio in Karnataka.

Source: Economic Times (link opens in a new window)

financial inclusion, microfinance