India’s microfinance sector hit by defaults pandemic


A man sits on a cycle rickshaw at the wholesale market after authorities eased restrictions imposed to slow the spread of coronavirus disease (COVID-19) in the old quarters of Delhi, India on June 8, 2021. REUTERS / Adnan Abidi / Photo from file

MAMBAY, July 14. (Reuters) – Small loan specialists in India, who usually serve people without bank accounts, are facing a spike in defaults related to the pandemic that could force some of them to go out of business, industry experts warn.

Loans 30 days overdue are expected to reach 14-16% of all so-called microfinance loans in the immediate aftermath of the second wave of COVID-19 to sweep India, said Krishnan Sitaraman, senior director at CRISIL.

This is above 6-7% in March before the second wave took hold, as well as above the 11.7% achieved in March 2017 after the campaign to demonetize India – attempts to stimulate digital transactions and crack down on undeclared money, which also hit microfinance hard. creditors. …

“Old loans that were taken out in 2019 or early 2020 are subject to a higher risk of default, and they represent about 60-65% of the loan portfolio for lenders,” said Harsh Srivastava, former head of the Microfinance Institutions Network, an association representing sector in India.

Rahul Jori, chairman of Vector Finance, a microfinance firm that provides loans to small businesses, said many of the government’s support measures have only helped larger organizations, while smaller players have struggled.

“This has become a problem for several small and medium-sized microfinance institutions as businesses have been severely affected and fees have dropped,” Johri said.

Loan collection efficiency across the entire loan pool fell to about 70% from a peak of nearly 95% in March, analysts said, indicating a possible increase in stress.

As of March 31, India’s microfinance lenders had a combined loan portfolio of Rs 2.6 trillion ($ 35 billion), according to CRISIL.


Despite the short-term troubles, some remain optimistic about the sector and expect it to recover if the expected third wave of COVID-19 infections in India is not as severe.

“About 55% of the market is still underdeveloped, which means huge market opportunities … so things will get better soon,” Yohri said.

But at the moment, many of the smaller microfinance firms are in a quandary.

These companies, which typically have loan portfolios of less than Rs 5 billion (US $ 67 million), have increased their value of funds by 100-150 basis points as banks and companies are less willing to lend, said one industry executive. speaks on condition of anonymity.

Some microfinance firms have been forced to scale back their plans to raise capital due to weak investor interest, the heads of two firms, which were trying to raise funds, said.

As smaller players hesitate, some have stopped paying salaries or employee incentives in recent months, they added, asking not to be named due to the sensitivity of the issue.

“Right now we only get the base salary, incentives have completely stopped in the past few months as fees have dropped,” said a collection agent for one microfinance lender in eastern India.

Reporting by Nupur Anand Additional reporting by Jatindra Dash Editing by Mark Potter

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