It’s deja vu for the Rs 60,000-crore microfinance industry as some major banks are going slow in lending to small and medium-sized microfinance companies or suspending it for the time being as they are ascertaining the downstream market which saw gaps in repayment and slackening disbursements.This is a throwback to the 2010 liquidity crisis, which was triggered by non-payment of loans by end-borrowers in Andhra Pradesh prompting banks to stop lending to micro lenders across the spectrum.

According to MFIN, there are 13 small MFIs with gross loans less than Rs 100 crore, 20 are medium-sized companies with gross loans between Rs 100 crore and Rs 500 crore, and 24 large MFIs with gross loans of more than Rs 500 crore. MFI leaders said that repayment of loans has improved after the fear of bad credit bureau scores. But MFIs are facing major hurdles in loan disbursements as bank branches are rationing cash withdrawal, with smaller MFIs facing the brunt as they are not receiving bank loans either. In 2010, several MFIs in Andhra Pradesh went bust when banks stopped lending to them.

“Growth is likely to take a pause,” said Credit Suisse in a report on Bharat Financial Inclusion (formerly SKS Microfinance). “The company is constrained by cash (recycling collected cash). Overall disbursements are less than 70% of collected cash, and 30% below 2Q (second quarter) run rate since the announcement,” it said.

 

http://economictimes.indiatimes.com/industry/banking/finance/banking/banks-slows-lending-to-smaller-mfis/articleshow/55730855.cms

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