Assam turmoil: Microfinance institutions face irregularity, delay in loan repayments

The Microfinance industry is facing the heat of the current turmoil in Assam. Microfinance institutions (MFIs) operating in the state are not being able to collect loan repayment installments from their customers in the state for the last few weeks due to the violent protests over the Citizenship (Amendment) Act.

Worried microfinance industry feels that if the “irregularity and delay” in loan repayments get longer, then there would be a major problem for every player — small, medium and large.

“This is the situation, where sentiments are high. So, there is no point trying to push our employees doing collections. We have to wait and watch, and give them some time,” Microfinance Institutions Network (MFIN) chairperson Manoj Nambiar told FE. MFIN is a premier microfinance industry association and also the Self-Regulatory Organization (SRO) for regulated NBFC-MFIs.

Incidentally, the All Assam Students’ Union (AASU) began a three-day ‘Satyagraha’ from Monday against the Citizenship (Amendment) Act at Guwahati’s Latasil playground. “The union has requested us not to push employees to go out for collections, in fact keep the branches closed, and not push customers for repayments. So, we will hold on till this Wednesday, what they have requested,” Nambiar informed.

Last week, when the movement was at its peak and situation was very tense in Guwahati and some other places in Assam, MFIs had asked their officials to take precautionary measures and not to go out for collections. “So, there will be delayed repayments. Customers have the money, but obviously in this kind of situation they will want to protect their families first. Once the situation limps back to normalcy, I am sure we will work with the customers. So, there will be delayed repayments, not defaults,” the MFIN chairperson said.

“When the repayments get delayed, provistions stricken for NBFC-MFIs. If repayment is overdue by 90 days, automatically the account becomes NPA. These situations would impact mid and small-sized MFIs, whose net worths are not strong,” Nambiar said while speaking to FE.

Notably, around 20 MFIs are working in Assam, of which as many as 15 are small and mid-sized. Total microfinance customers in Assam was around 27 lakh at the end of September this year. For NBFC-MFIs’ total exposure in Assam is around Rs. 4,000 crore, and on monthly basis 8-10% of the total exposure comes for loan repayment from customers. Microfinance players generally have weekly, fortnightly and monthly repayment schedule for their customers.

“We are not being able to collect repayments from our customers in some places in Assam. Our employees are not able to visit those places. So, there has been irregularities and delay in collection. Sometime we are getting 70-80% of our collections, sometimes we are getting only 50%. We are facing this problem for the last two-three weeks. But, we cannot do anything about it,” said Kuldip Maity, MD, Village Financial Services (VFS).

“The major question is how long this uncertainty will continue. If the current irregularity and delay in repayment get longer, then there would be a problem for every MFI,” Maity added.

Private sector lender Bandhan Bank, however, was combating the present challenges in Assam ‘efficiently’ compared with other microfinance players as it had very strong presence at the “ground level” in the state for a very long time, a senior official of the bank told FE. “We are hopeful that the situation will return to normalcy within a short period of time. We are cautious on fresh lending in the state,” the official said. For Bandhan Bank, around 16% of its microfinance loan book is in Assam, while it is around 6% for its total loan book in the state.

Satin Creditcare Network’s chief operating officer Dev Verma said normal operations had been impacted as internet was not working. “There is a tough situation at the ground level. At the industry level, we are in touch with the state government and our clients,” Verma said, adding for his company the impact was limited to four-five districts of the state.

“The political issue might continue. As far as we are concerned, the business on the ground should come back to normalcy by the end of this week,” Nambiar stated.