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27
June 2017
 |
Farmer (The Total Investment & Insurance
Solutions)
News
flow on farm loan waivers may not have a material negative impact—at least as
far as Maharashtra is concerned -- and borrowers appear to understand that the
waivers being announced are for agri loans from banks while loans (availed)
from micro-finance institutions (MFIs) are different, says a research note. The Total Investment & Insurance Solutions
In
the report, Credit Suisse says, "The borrowers we spoke to generally
understood the distinction between farm loans that are being waived by the
state government and microfinance loans. The chatter specifically about loan
waiver for MFI loans peaked during the local election phase, and is now absent.
Fear of bad bureau scores, and reinforcing behaviour by MFIs, like fresh loans
only to customers with full payment track-record, has helped. Also, the fact
that government machinery had only recently worked to clarify the status of MFI
loans post demonetisation (i.e., as loans from legal private companies, who are
regulated by Reserve Bank of India and who report all loan details to credit
bureaus) helped stem any voices out to cause confusion." The Total Investment & Insurance Solutions
The
report is by Credit Suisse after field visits at the offices of Bharat
Financial Inclusion Ltd (BHAFIN) in Vidarbha region of Maharashtra, one of the
most affected regions post demonetisation. This area accounts for 5% of the
nationwide portfolio of BHAFIN, the country's largest MFI. It says, “The
company has not been adding any new borrowers since demonetisation. Fresh loans
are disbursed only to fully current borrower groups. This seems to have helped
reinforce better behaviour. Borrowers we spoke to were aware of the credit
bureaus.” The Total Investment & Insurance
Solutions
Credit
Suisse says during February-March, or at the peak of elections, collections for
BHAFIN bottomed at about 55% in Vidarbha region. "Since then, collections
have recovered swiftly—currently running at 85-90%. The company has added
more resources, including senior management who had experience handling Andhra
Pradesh issue in 2010, to focus on the area. New client acquisition has not yet
started, unlike elsewhere in the country, and loans are given only to borrowers
or groups without any overdue, which is the norm in any case. The time freed up
in afternoons (since no new customers are being acquired) is being used (by
BHAFIN) to visit affected villages and convince borrowers to come forward and
pay."
"There
was also some regrouping done like clubbing fully current borrowers into the
same group so that they can be treated as normal groups for disbursement
purposes, which also had a signalling effect. We also believe that the weekly
model followed by the company helped contain losses (smaller ticket size of
instalments, frequent borrower interaction). Other than Grameen Koota (recently
acquired by IDFC bank), no other MFI follows weekly collections here," the
report says. The Total Investment & Insurance
Solutions
According
to Credit Suisse, the Vidarbha region saw significant political interference in
the aftermath of demonetisation—with local politicians eyeing a series of local
elections.
"Our
discussions made us conclude how easy it is to spread rumours in villages. For
instance, after demonetisation, there were rumours that BHAFIN company has
closed down and all loans are being waived. The company officials had to make
frequent trips to the village and also rope in local administration to quell
the rumours. Another well-known micro-finance company is now suffering a
similar rumour! Another rumour sometime back was that Rs10 coins have been
demonetised, that resulted in borrowers walking in to pay their instalments in
bags of coins," it added.The Total
Investment & Insurance Solutions
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