India’s microfinance loans are growing at a scorching pace, but it’s a warning signal

Friday, May 29, 2015

The past is never dead. It’s not even past. William Faulkner’s famous saying is now of significance in the Indian microfinance industry. The institutions that give tiny loans to the poor somehow seem to be rediscovering their long-lost obsession for rocket-speed loan growth — the same mistake that once shattered the entire industry.

The industry numbers released by microfinance institutions network (Mfin), an industry body of micro lenders, for the fiscal year 2015 indicate a very sharp pick up in the number and quantum of loans disbursed during the year.

The total number of loans given over the year 2014-2015 grew by 37 per cent compared with the previous fiscal year, while the quantum of loans disbursed expanded by 55 per cent. The aggregate gross loan portfolio of MFIs thus grew to Rs 40,138 crore—more than double from what it was 2-3 years back.

Such a rate of growth surely indicates that the Indian MFI industry has managed a smart recovery from the days of a severe industry crisis it confronted in 2010 October, when the erstwhile Andhra Pradesh, the biggest microfinance market then, promulgated a law to control the alleged excesses conducted by certain institutions to recover money from the borrowers.

However, this growth also sends some warning signals.

Source: First Post (link opens in a new window)

Impact Assessment
financial inclusion, microfinance