MFIs may find high ovedues due to demonetisation: Ind-Ra

Kolkata, Nov 17 (IANS) With the microfinance industry taking a hit due to demonetisation, rating agency India Ratings and Research (Ind-Ra) on Thursday said microfinance institutions (MFIs) may experience high overdues.

“Ind-Ra believes demonetisation is likely to affect MFI borrowers and MFIs across the country, albeit temporarily. MFIs’ borrowers are expected to reprioritise their expenses on account of face cash flow mismatches. As a result, MFIs may experience high overdues. Moreover, demonetisation indicates lack of diversification in MFIs’ borrower profiles,” it said in a special report.

The agency’s analysis shows that most MFIs have liquidity in the form of “unencumbered cash” and unavailed bank lines to meet debt obligations for 30-60 days in the event of business disruption.

“If money flow does not fully normalise by 4Q FY17 (January-March quarter of 2016-17), Tier 1 capital of few MFIs could come close to regulatory minimum levels,” the report said.

The rating agency further said it expects banking habits to improve in the long term, as currency flow resumes, and this would be a positive development for the institutions as well as their borrowers when their credit history improves.

MFIs have temporarily stopped providing credit to their customers after the demonetisation of high-value currency notes. Loan repayments have also taken a major hit. Microfinance firms have deferred the repayment schedule of their borrowers for the next few days.