Assam continues to be a pain point for MFIs as defaults remain high

With little respite from spate of defaults in Assam, the microfinance industry is witnessing stress, particularly in North East.

According to data from CRIF MicroLend for Q3 of this financial year, the portfolio at risk (PAR) for the industry for repayment between 31 and 180 days stood at 1.5 per cent, which was 50 per cent higher on a year-on-year basis.

The report further says that banks, which had been at the least risk in the previous quarter, have shown deteriorating asset quality with an increase in both 1-30 and 31-180 days’ buckets across rural and urban geographies.

North eastern region which has share of the GLP at 7 per cent, faced considerably high early repayment stress in Q3 FY 2019-20, at 10.3 per cent compared to PAN India figure of 1.9 per cent.

Other factors which contributed to the defaults include, natural calamities, over-lending and defaults in states where debt waiver was announced.

“While indebtedness is on the rise across the state of Assam, the majority of issues are within 4-5 districts. This is being addressed collectively with all lenders operating in the state, including banks, NBFCs and MFIs. While the rate of PAR 30 (due date after 30 days) is only 1.6 per cent across India, in Assam it was 6.6 per cent,” according to Somesh Data, Associate Director, Sa-Dhan, a MFI industry body.

In Assam, initially, the protests were led by one Jagrata Mahila Suraksha Samaj, which claimed microfinance lending is responsible for suicides in the state. Later, coupled with protests over NRC, the defaults spread to other parts of the state.

“At the local level there is confusion. After December 12, 2019, the spate of defaults spread to other parts of Assam. However, the PAR at 90 days is still not affected, although there are delays in PAR 30 days,” said Manoj Nambiar, chairman, MFIN (microfinance Institutions Network).

Another factor which has contributed to the defaults in Assam is the stress in the tea economy.

“Upper Assam is dominated by tea gardens, where there is high indebtedness. This apart, CAA and NRC related protests have added to the defaults,” says Kuldip Maity, MD and CEO, Village Financial Services.

As of December 2019, eastern geographies dominate the MFI sector with a gross loan portfolio share of 32.3 per cnet, mainly attributable to West Bengal and Bihar. Southern region has a share of 28 per cent, mainly on the back of Tamil Nadu. West at 14.7 per cent, North at 10.7 per cent, North East at 6.9 per cent and Central at 7.8 per cent constituted the remaining portfolio outstanding in Q3 FY 2019-20.