The microfinance sector is again facing troubles, this time in Assam with stress in rural households and a spate of loan defaults, raising the spectre of repayment crisis that hit Andhra Pradesh in 2010.
Various organisations in the upper part of the northeastern state have joined the chorus seeking an inquiry into the operation of microfinance lenders as several micro borrowers are said to be exposed to high debt. Reports of unrest have come from districts such as Dibrugarh, Golaghat, Jorhat, Sibsagar and Tinsukia.
An internal study conducted by Microfinance Institutions Network (MFIN), which is the self-regulator for the sector, shows that indebtedness of micro borrowers in Assam is more than double the national average while it is four times in these five districts.
“The trouble in Assam is a result of what we have predicted long before,” MFIN chairperson Manoj Nambiar said. “Post demonetisation, there have been influx of new players in the microfinance sector, which are not necessarily guided by the same rules, leading to overlending.”
“Now when the cash flow is getting tightened with falling annual household income on account of rural slowdown, non-repayment of loans has started happening.”
The study extracted 700,000 customer data from five districts following the mass default and found that 7% of borrowers have more than Rs 1 lakh outstanding loans as on March, breaching the Reserve Bank of India’s prescribed limit, compared to the national average of 3%. The RBI limit for micro loans per borrower was Rs 1 lakh, which has been revised as recently as in October to Rs 1.25 lakh. High customer leverage of 11% was seen in the five affected districts.
The study shows that among highly indebted borrowers, 24% have taken loans from more than three lenders. About 38% of high-indebted customers have not taken a single loan from NBFC-MFI, 41% have single NBFC-MFI as lender, 19% have taken loans from two NBFC-MFIs. Only 2% have more than two NBFC-MFIs as lenders. RBI rules say not more than two NBFC-MFI should lend to a specific borrower while there is no bar on the number of bank lending to the same borrower.
“NBFC-MFIs have no other option but to follow RBI’s guidelines for microfinance as well as the industry code of conduct, but the same does not apply to small finance banks, universal banks and other lenders. That is where the need for the ‘Code for Responsible Lending’ (CLR) comes in play,” Nambiar, who is driving the CRL project, said.
MFIN unveiled CLR for NBFC-MFIs, SFBs and banks in September to bar more than three lenders (agnostic of their stature) offering loans to a single borrower and cap the size of total lending to Rs 1 lakh per borrower. However, protesters led by Jagrata Mahila Suraksha Samaj say operations of several micro lenders were not transparent and they must be barred from operating in Assam.
Antara Dutta, member of the organisation, said women who have taken loans have been living under fear as failure to pay one instalment attracts penalty. “Around 19 to 20 people have committed suicide for not being able to repay loans. There is no concept of late payment of instalments in some MFIs, so people have to give away jewellery. They are into a vicious cycle of debts.”
Her claims of people committing suicides cannot be verified independently.
MFIN and individual lenders have held meetings with local administrations to keep the situation under check. “I am aware (of the situation). Government is examining the issue,” Assam finance minister Himanta Biswa Sarma told ET.
On Wednesday, distressed women borrowers with supporters from All Adivasi Student Association of Assam (AASAA), Krishak Mukti Sangram Samiti, Asom Jatiyatabadi Yuba Chatra Parishad, All Assam Tea Student Association, Tai Ahom Chatra Sanstha, and Tai Ahom Yuva Parishad Asom held a protest march in Dibrugarh seeking government’s intervention in the operation of the micro finance institutions.
They said borrowers have been pushed to penury. Rustom Kujur, vice president at AASAA, said loans are being offered without getting proper income certificate. “Multiple loans are issued to single borrowers. Huge interest is collected on weekly basis. Defaulters had to part with cycles, cooking gas cylinders, adult pigs and even CGI sheets from the homes,” he said.
“Northeast states including Assam have been a good market for microfinance. The trouble was triggered by some local unions following some defaults. But most of our borrowers are with us. We at MFIN are taking every possible step to restore normalcy,” Nambiar said.