Note ban hits microfinance firms' collections, disbursements

The demonetisation drive announced a month ago has significantly affected collections and disbursements of microfinance firms, an industry body said today.
This has happened because a majority of borrowers repay their loans in cash, whose supply was disrupted when Rs 500 and Rs 1,000 bills were declared invalid on November 8, Microfinance Institutions Network (MFIN), a self-regulatory body, said.
"The collections and disbursements at the ground level have been affected significantly in the wake of demonetisation of Rs 500 and Rs 1000 notes since a majority of borrowers repay their loans in cash," Ratna Vishwanathan, Chief Executive of MFIN, told reporters here.

"Further, there has been a misinterpretation of a Reserve Bank circular on "Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances" brought out on November 21, 2016," she said.
It has given rise to certain misconceptions leading to borrowers believing loan payments have been deferred by 60 days. The circular is only for providing an additional 60 days for classification of standard assets to sub-standard assets as customers may need some time to make repayments because of withdrawal of legal tender status to existing Rs 500 and Rs 1,000 notes, Vishwanathan maintained.
"We request our borrowers not to believe in rumours that are being spread. Member institutions are working with customers without causing any stress to them. Customers, while inconvenienced at this point of time in getting legal tenders, are coming forward to repay as and when they get the same."

There is no blanket moratorium on loan repayment given by any NBFC or MFI. Customers are requested to pay loans as soon as possible with new notes to maintain good credit history, Vishwanathan said.
"We have requested the regulator (RBI) and Ministry of Finance for a customer-friendly solution so that credit history of our clients is not impacted," she added.