Micro-lenders face a crisis in Assam

Chennai: The micro-finance sector is witnessing yet another crisis, this time in Assam. Borrowers in a few districts have been protesting against micro-lenders and this has brought down collection efficiencies down to 70 per cent.  Around 30 to 35 lender entities are facing a tough time in the North-eastern state.
Since the third week of October, several micro-finance borrowers in five– six districts of Assam have stopped repayment of their loans. The collection efficiency that stood at 98 -99 per cent has now dropped to 70 per cent.

These five-six districts account for 15 to 20 per cent of the total customer base of the state, which stands at 27 lakh. These districts also account for 10 per cent of the state’s total loan portfolio outstanding of Rs 1,300–Rs 1,400 crore.

According to Manoj Nambiar, Chairperson of Micro Finance Institutions Network (MFIN), over-exposure per borrower is the main reason behind the current crisis.

“The customers of these districts have an exposure that is one-third higher than the national average. Apart from NBFC-MFIs, all other lending entities, including banks, small finance banks, NBFCs and unorganised lenders, have been active in the market. Among them only NBFC-MFIs are highly regulated by the RBI.  Hence the per borrower exposure in some cases have gone up more Rs 1.5 lakh,” he said.

When some of the borrowers found loan exposure higher than their incomes, they started defaulting. They also received support from local student unions and other groups. The groups allege the micro-lenders are charging higher interest rates and are following tough recovery methods. They have been demanding waiver. Around 30 to 35 micro-lenders are active in these districts. They are talking to the district administration to solve the issue. Micro-lenders have suggested a Special Grievance Redressal Mechanism for the defaulters.

Financial Chronicle had earlier written about the industry’s concern about steady growth in average ticket size and exposure per borrower in the sector and the fast pace at which micro-finance has grown in the eastern states. Eastern region increased its share of the total loan portfolio of NBFC-MFIs from 16 per cent to 36 per cent in the past two years to become the top region in terms of loan outstanding. Indust-ry watchers were worried that the loan exposure was going up above the income levels for many borrowers.

Micro-finance has gone through a similar situation after demonetisation. In five states— Maharash-tra, MP, UP, Uttarakhand and Karnataka—vested interests with political aspirations started spre-ading rumours and the loanees were made to believe that the Centre would waive the micro-loans hence there was no need to pay back the loans. This increased the delinquencies and eventually several lenders wrote off part of their stressed assets. After this crisis, micro-lenders had started focusing on the eastern states, which had low levels of exposure and no history of delinquencies.