36% increase in micro finance, loan quality also improved

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There has been an increase of 36 percent in providing loans from microfinance institutions to the poor for doing business etc. The share of banks in providing loans to these institutions has also increased to 60 percent. A report released on Monday by Kotak Institutional Securities states that states, where the outbreak of floods was high last year, have affected the borrowing from MFIs. Apart from this, there has been no major decline in the speed of loans disbursed by MFIs in any state.

The report also states that the quality of loans disbursed by MFIs has also improved. The state of disbursed debt has worsened in Kerala and Odisha. There was an outbreak of floods in both these states last year and that is the reason that people who took loans from MFIs in these states have a problem in repaying them. The situation has also weakened slightly in Bengal, Assam, and Jharkhand, but their situation is still much better than in the southern states. In the above five, the number of people in the states has increased, who have not been able to repay the loan till one month (30 days) after the stipulated period.

Despite this, according to the report, in Assam, Bihar, Bengal, and Jharkhand, the rate of lending by microfinance institutions has increased from 50 to 110 percent. The report also reveals that the impact of these institutions is still very much in rural areas. The rural sector accounts for 74 percent of the loans disbursed from MFIs in the first quarter, while the remaining share is from urban areas. 87 percent of the loan has been given cashless, ie directly transferred to the bank account.

Reports released by Kotak Securities and RBI recently show that even though the corporate sector has reduced the pace of borrowing, the low-income segment is still taking a good amount of debt. According to this RBI report, between July 2018 and July 2019, the loan disbursement amounting to less than one lakh rupees by banks has been 26.1 percent.

On the other hand, the credit to the corporate sector has increased by just 6 percent. It is worth mentioning that microfinance companies take loans from banks and NBFCs or other financial institutions and give loans to people from very lower strata of society or those doing small scale business.

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