Loan waiver promises may hamper micro loan repayment, but only temporarily
loan waiver announcements closer to the elections.
However, the impact of such announcements, if any, may just be short-lived as bottom-of-the-pyramid borrowers have over the years leant the importance of maintaining a healthy credit score.
Captains of the microfinance industry said that their borrowers have now become savvy and know that a good repayment ensures timely dose of loans when they require it the most. So, debt waiver announcements could only derail repayment just temporarily and would not translate into default and significant escalation in credit cost.
«Unless specific debt waiver announcements are made for microfinance like in Assam, the impact could be temporary.
Vulnerable borrowers could delay one or two installments, but they ultimately come back and repay loans,» said Jiji Mammen, executive director at Sa-Dhan, one of the microfinance industry associations.
In the next four months, four states – namely Chhattisgarh, Madhya Pradesh, Rajasthan and Telangana
Historical trend too suggests lack of correlation between collection efficiency trend and state elections, ICICI Securities said in a report.
Cumulative exposure of NBFC-MFIs to these four states stood at about 12% of their total assets under management of Rs 1.4 lakh crore at the end of March with MP’s share at 6% and Rajasthan’s at 5% while Chhattisgarh and Telangana shares stood at negligible 1% and 0.5% respectively, the report mentioned. Portfolio at risk for over 30 days (PAR 30+) for MP was at 2.8%, Rajasthan at 3% and Chhattisgarh at 2.7%.
The sectoral loan outstanding was over Rs 3.5 lakh crore at the end of March.
«While we believe a loan waiver announcement closer to elections poses risk of lower collections due to temporary delay in
