Viewpoint: Why Microfinance Is an Ugly Word in India’s Villages

Friday, December 16, 2016

Vidarbha, the cotton bowl of India – which has been periodically witnessing the spectre of suicide with farmers plagued by unmanageable debts taking their lives – is now back in news for almost similar reasons. This time, in the centre of the storm are microfinance institutions. Borrowers in four districts – Nagpur, Amravati Yavatmal and Wardha – have started defaulting on their loans, egged on by politicians.

The elections in 164 municipal councils across 25 districts of Maharashtra in November 2016 were liberally used by politicians to promise loan waivers.

Several rallies are being organised, mostly by women, and representations are being submitted to district collectors against microfinance institutions (MFIs) alleging coercive recovery practices. Agents are drafting representations for individual borrowers for submission to district administration for the waiver of their loans, making an income of Rs 200 for each representation.

The issue started after the RBI’s revised instructions for MFI on classification of NPAs following demonetisation. The RBI has relaxed the income recognition norms by 60 days. A loan turns bad when a borrower does not pay for 90 days, but the RBI has extended this period to 150 days for loans to be repaid in November and December.

Source: DailyO (link opens in a new window)

financial inclusion, microfinance