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Gold rush over for microfinance……..M Rajshekhar
HYDERABAD/NEW DELHI: Kolar in Karnataka was once famous for its gold fields. But early last year, the district gave a warning shot to the next crop
of gold diggers, even though the mines here shut down long ago. The microfinance Gold Rush, the lure of 100% repayment despite interest rates as high as 35%, received a rude jolt after the Anjuman Committee issued a directive to the district’s mosques forbidding believers from any further transactions with microfinance institutions (MFIs).
The Kolar fatwa rested on dwindling incomes thanks to a slump in key trades in silk and handicraft and growing discontent against MFIs’ loan recovery tactics. The following days showed MFIs, long feted for taking banking to the masses, how vulnerable life could be. Kolar’s 43 MFIs together lost Rs 60 crore.
For the nascent Indian MFI segment, with a loan book of around Rs 11,700 crore against a mere Rs 897 crore in 2005, Kolar could just be the tip of the iceberg.
An extensive ET research across India shows that although the sector continues to be in denial mode, worried regulators, lenders and the borrowers themselves are distancing themselves from the Gold Rush and evaluating future options.
RBI deputy governor Usha Thorat agrees that there is aggressive pushing of loans to groups without ascertaining the repayment capacity of the ultimate borrowers.
While that statement, coming from a central banker, is reminiscent of the subprime crisis that brought down the American banking system, Ms Thorat dismissed that likelihood and said the problem is not systemic. “The MFIs are too small for that,” she told ET.
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