Letter to BS: Microfinance firms feel the ripple effect of liquidity crisis

=This refers to “Microfinance firms feel the ripple effect of liquidity crisis” (October 29). While microfinance institutions are engaged in driving the growth of the microeconomic activities, it is important to ensure that these organisations are facilitated with need-based credit at reasonable terms or else it will negatively impact the growth of small and micro businesses. The persistent liquidity crisis in the non-banking financial company (NBFC) segment is not conducive to micro-lenders. In order to tide over the present liquidity crisis, relaxations made by the Reserve Bank of India (RBI) will not deliver the intended results unless the banks have the willingness and capacity to lend to the crisis-ridden NBFCs.

The beneficiaries of microcredit are mostly from the unorganised sector and as such, their capacity to borrow from the organised financial market is near zero. If the microfinance institutions fail to fund the credit requirements of the microeconomic activities of the economy, it will adversely affect the idea of inclusive economic growth. The government and the RBI should have to plan and work in tandem to remove the hurdles to ensure a smooth flow of institutional credit at an affordable price to prevent the microcredit borrowers from approaching private money lenders who charge exorbitant rates.

V S K Pillai Kottayam

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