Risk in Commercial Microfinancing - A Social Perspective from India

Abstract

The positive role of Microfinance in Rural Development is applaudable when backed with a Social Vision. However, mass-commercialization of the sector is a concern! Recent agitations of the Tamil farmers, protesting for the announcement of a drought relief package and loan waiver before the Jantar Mantar, and the recurring episodes of farmer’s suicide in India are evidences to what debt-distress is! It has both qualitative and quantitative implications. Propensity to debt and “indebtedness” is a growing risk in Microfinance. Post demonetization recoil in commercial lending and the boom in financing activities backed by digitization may further dampen the situation, especially in Rural India. MFI sector showed resilience to change even in demonetization. It managed to close the year with an outstanding loan portfolio of ₹ 46,842 crores (approx.. $7.2 bn) with a fair CAGR of 16.15% over last four years. Today MFIs serve around 29 million clients with an average loan of ₹ 12,751 (approx. $196). Though the average loan is low and insignificant in figure; it has to be analysed from the perspectives of multiple borrowings, unproductive utilization, limited earning opportunities, slump in Agriculture, Industry and Manual Labor, and the ease of financing in the rising era of digitization.