MFI credit squeeze hits small businesses in the unorganised sector hard

For Anima Biswas, 37, this Durga Puja may not augur well. She has a small ladies' tailoring and accessories shop in downtown Kolkata. However, unlike last year, she could hardly have enough offerings in store because of lack of finance and is losing out on business opportunity.

Her problem has its roots in the recent developments concerning the microfinance institutions (MFIs), forcing banks to drastically cut down their exposure to such institutions, resulting in a credit squeeze in the small unorganised businesses.

Apparently, MFIs were accused of earning super-normal profits. However, Anima has little interest in wider economic good. With her loan applications being turned down by the cash-starved MFIs, she is now faced with little choice but either compromise the business opportunity this season or approach private moneylenders, charging nearly three times the MFIs.

“I had taken loans amounting to Rs 10,000 each on two-three occasions earlier with which I bought sewing machines and set up a small tailoring unit. I have already repaid all my earlier loans and was pinning my hopes on the loan from the MFI this time to get adequate stock to meet the increased demand during the Pujas. However, it has been close to six months and I am yet to get a sanction of my loan. I wonder why they (the MFI) are taking so long this time,” said Anima, who is completely unaware of the recent developments in the industry.

Arohan, the MFI, which had extended loans to Anima on earlier occasions, has gone slow on disbursements due to the liquidity pressures. MFIs usually take anywhere between 15-20 days to sanction fresh loan to the customers who have successfully repaid their earlier liabilities.

“This time it has been four-to-six months since the customers have repaid their last loan but we are unable to disburse fresh loans,” Mr Shubhankar Sengupta, Managing Director, Arohan Financial Services Ltd.

MFIs are not only delaying and scaling down their disbursals this year but are also lowering the credit limit to individual customers. The inability of MFIs to service their clients in a timely manner has lead to the mushrooming of small time moneylenders in various pockets.

“People having surplus cash of about Rs 50,000-60,000 are stepping forth to fill the vacuum at a comparatively higher rate of interest,” said a field officer.

Hamida, 28, a small time entrepreneur involved in the making of leather gloves is facing a big trouble. She needs to gather adequate stocks for the whole year before the month of October as post that it would be difficult to get the required raw materials in the market.

“The sale of leather gloves is not directly linked to the Pujas but if I do not stack up the raw materials before October then it will be difficult to procure it later,” she said ruefully.

Mr Kuldip Maity, Managing Director and Chief Executive Officer, Village Financial Services Ltd, said, “With Pujas round the corner, most customers are unwilling to wait and are going to moneylenders who are charging anywhere between 8-10 per cent interest per month.”

COMMENT NOW