Demonitization May Lead To Equity Erosion For Microfinance Institutions, Says India Ratings
Demonetization has brought weak spots in the microfinance sector to the fore, said rating agency India Ratings & Research in a report which warns that companies in this business could face significant credit costs and equity erosion this year. Inherent weaknesses in the microfinance sector, such as excess leverage among borrowers, have been exposed due to demonetization and political interference in the rural economy, said the rating agency.
India Ratings had warned about a build up of risks in microfinance even before demonetization was announced in November last year. Since then, the cash shortage brought on by the currency exchange program and increased instances of farm loan waivers, have disrupted the market further.