With loan disbursements and their repayments nearly stopped for many microfinance institutions, the Indian microfinance sector is largely on a holiday, thanks to the challenges of cash available within the system following the demonetisation of the 500 and 1000 rupee notes.
Even if it all seems somewhat similar to what one had read in Aladdin's tales about 'exchange of old for new,' the move announced by Prime Minister Narendra Modi on November 9th has had a huge ramification.
In one shot, 84 per cent of the currency in circulation went out of the market. That is a huge Rs 14 lakh crore going out of circulation. The MFIs cannot accept them as they are no more legal tender.
Then, disbursements have come to a near standstill because cash is not available to the extent required and even if some MFIs do it electronically, they seem to have stopped because they can credit the borrower's account but they themselves cannot draw the cash.
The government has been introducing new currency notes but the quantum and speed with which the replacement is happening is still short of what is needed.
But as far as micro lending business or microfinance is concerned, to many, it is more or less on a holiday though it seems to be differing between regions.
Some argue that in South, the availability is bit better and therefore repayments are perhaps a bit better there than elsewhere. Most of the MFI (microfinance institutions) have therefore opted to put collections "on hold" - what some others call a "repayment holiday", at least for a week. These could be sums as small as Rs 200 to Rs 1,000 from borrowers depending on whether they are weekly or monthly repayments.
This does not seem to have hit those MFI entities who operate as business correspondents for banks. But then, the timing may be quite inappropriate from a borrowers' perspective, given the coming Rabi season, there will be greater demand for loans. As would be the case for the coming marriage season, which might also be a trigger for seeking more loans, at least by small traders.ALSO READ: Luxury home rate may fall by 25-30% after demonetisation: JLL
As a veteran put it, Indian microfinance tends to get cursed and blessed together. Whenever there are signs of overheating, the sector also gets a ready external target it can blame for all the ills. For instance, in 2010, there was the ordinance by the Andhra government and now, cash availability challenges.
Because of the over 100 per cent growth it was beginning to show, there were fears that the sector will see some implosion but now it can blame the currency scenario for repayment cycle stopping and the resultant non-performing assets (NPAs) if any.