MFIs in Assam, borrowers set to get major relief as govt steps in

In a major relief to microfinance institutions (MFIs) and their borrowers, the Assam government on Friday inked an agreement with MFIs to regularise stressed borrowers and repay the entire loans of highly stressed borrowers.
 
Also, as an incentive to good borrowers who did not default, the government will repay for each account Rs 25,000, or the loan amount, whichever is lower, to the MFIs. The total cost for the government will be a maximum of Rs 8,250 crore. The agreement was inked with Micro Finance Institutions Network (MFIN).
 
According to CRIF Micro Credit, Assam was one of the most stressed states in terms of microfinance loans. A report by the credit bureau said loans overdue over six months in the state rose to 13.6 per cent in March 2021 from 6.5 per cent in December 2020. Borrowers in the state, on average, had also borrowed from the highest number of lenders.

 

Easing the stress was one of the poll promises of the ruling BJP government. There are 2.6-2.7 million microfinance borrowers in Assam, of which about 500,000 are up to date on payments.  The scheme introduced on Friday aimed at incentivising this set of customers for their credit discipline by repaying up to Rs 25,000 for each borrower.
 
For the remaining 2.1-2.2 million customers, the scheme is divided into two parts. 
 
The government will pay the overdue part of the delinquent customers and make them standard. If the customer manages to run her account satisfactorily for the next three to six months, then the benefit of Rs 25,000 will also reach her in a staggered manner, explained Manoj Nambiar, president of MFIN.

 
There will be a complete waiver for customers who are in dire stress, or on the verge of bankruptcy. According to RBI rules, the maximum MFI loan outstanding for a customer can be Rs 1.25 lakh. If the customer is found highly stressed, which the lending organisation will verify, then her accounts will be recommended to the government for a complete waiver. The government will then pay up the entire amount after being satisfied with the veracity of the claim.
 
According to Nambiar, the scheme is well thought out and shouldn’t give rise to the question of moral hazard where the customers would expect further loan waivers going forward.

 
“With this scheme, the good customer gets an incentive, the delinquent customer is being regularised, and those in dire need get comfort. This should not be taken as a waiver. Rather, this is a step towards responsible borrowing, responsible repayment, and responsible lending,” Nambiar said.
 
Delinquent customers will have to make efforts to keep their credit history clean. “The credit report of a customer availing support by the government will get affected. It is our responsibility to ensure we educate customers and make them understand that they should take such a scheme as a one-off,” said Nambiar.