Demonetisation halts disbursements by MFIs, hits self-help groups

The demonetisation of old high value currency notes has brought disbursements by micro-finance institutions (MFIs) virtually to a standstill.

MFIs like Bandhan and Village Financial Services are not being able to make any disbursements to self-help groups (SHGs) since November 9.

This is true for the entire MFI industry as well, they said.

"Since small notes are not available, we are not being able to make any disbursements to the SHGs," MD of Bandhan Bank C S Ghosh told PTI on the sidelines of a seminar on MFI here on Friday.

Bandhan Bank, formerly Bandhan Financial Services, is also into MFI lending besides extending normal banking credit.

Ghosh said while the repayment by MFIs are on, disbursals have stopped.

"This is a temporary problem. Things will become easier once the new Rs 500 currency notes are pumped into the system," he said adding "the entire MFI segment is facing this problem."

Village Financial Services chairman Ajit Maity said, "Disbursements have been put on hold since November 9. Although it is creating some problem among the SHGs, this is temporary in nature."

"This is expected to continue for some more time," Maity added.