The Microfinance Institutions (Development and Regulations) Bill has brought some clarity to the microfinance sector. Banks have resumed lending; however, they have become cautious and selective in lending to the MFIs. Banks have also significantly reduced the size of their loans to MFIs. Difficulty in raising funds, in addition to the cap on margins, has made it difficult for small and mid-sized MFIs to survive and operate in a sustainable manner. As MFIs were the major sources of credit for the low income households, their absence created a big credit gap in the market.
A study conducted by MicroSave in Andhra Pradesh in 2011 highlighted the importance of MFIs as a source of accessible micro-credit for the low-income segment. The study found that in absence of MFI loans, former MFI clients had to resort to high interest credit sources such as money lenders and daily finance corporations (with interest rates as high as 5-10% per month).
To further enhance understanding of the effect of the microfinance crisis on the clients two years after it started,
MicroSave conducted another study in two states - Andhra Pradesh and
West Bengal. Both of these states have been home to some of the largest MFIs in India including SKS and Bandhan, and remain crucial epicentres of microfinance activity in India. The research focus and main findings of the research are given below.
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Research focus Findings - AP study Findings - WB study
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Alternate sources in the absence of MFIs SHGs figured in 79% of the sessions as alternative source. Informal sources have gained prominence with moneylenders and daily finance corporations figured in 48% of the sessions. In 63% of the sessions, respondents said that they have to borrow from multiple sources - SHGs and informal
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Pain points in the absence/lack of loans from MFIs High rate of interest charged by alternate sources is the biggest pain point (in 76% of the sessions) Delay is disbursal by the MFIs (50% of the sessions) and inadequate loan amounts (25% of the sessions) are the biggest pain points
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Coping strategies adopted by the poor, in the absence/lack of readily available credit from the MFIs Alternate sources of credit – 56% sessions Alternate sources of credit – 63% sessions
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Scaling-back businesses – 41% sessions
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Postponing business expansion plans – 19% sessions Postponing business expansion plans - 19% sessions
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The willingness of clients to repay MFIs Clients were willing to repay in 47% sessions which is an alarming drop from 90% of the sessions in August 2011 study.
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The findings of the research and relevant recommendations will help the stakeholders to take decisions that enable the poor to have better access to financial services.