Investors planning to put money in the sector have suddenly turned cautious and are buying time to see how things pan out, two people familiar with the matter said.
“We have been discussing with the state government so that the provisions of Bill do not come in way of day to day functioning of MFIs,” said P Satish, executive director at industry association Sa-Dhan. “We are trying to reassure investors that the provisions of Assam microfinance bill are not as restrictive as Andhra Pradesh microfinance act,” he said.
Competitive populism by offering financial benefits to the northeastern state’s 27 lakh microfinance borrowers has turned out to be major poll plank. It’s the opposition Congress which first promised waiver of loans taken from these institutions if the party is voted to power, with the incumbent Bharatiya Janata Party matching it.
Assam has been the hotbed of microfinance related trouble since late 2019 due to over indebtedness in some districts that triggered political and social activism leading to non-repayment of loans and disrupting credit culture.
The poll promises of micro loan waiver may create short term disruptions if borrowers stop repayment again in anticipation. Loan waivers worsen repayment culture and credit behaviour, Reserve Bank of India warned several times.
“We welcome any benefit being given to our clients. In the meantime, it is important to make repayments and keep the credit bureau record intact as most benefits are given only to regular borrowers,” said Manon Kumar Nambiar, chairperson at Microfinnace Institutions Network, another industry organisation.
Assam has about 45 MFIs while Bandhan Bank contributes about 55% of the total microfinance portfolio, followed by Arohan Financial Services at 8%, Ujjivan Small Finance Bank and Satin Creditcare Network at 3% each and the balance held by other small players, according to Emkay Global Financial Services.
The brokerage firm observed that Assam has seen sharp growth in the past few years, albeit on a small base. The average ticket size of loans in Assam is Rs 47,263 – second highest after West Bengal.
The Assam assembly passed the Assam Micro Finance Institutions (Regulation of Money Lending) Bill, 2020 despite the RBI’s reservations. The bill mainly aims to contain overleveraging of MFI borrowers and coercive collection practices by lenders, which has been causing frequent protests.