Indian banks that have disbursed loans to microfinance institutions (MFIs) may have reached an agreement with the MFIs regarding their requests to reschedule their loan payments. In December 2010, following a standstill in debt repayment by MFI clients in the state of Andhra Pradesh, several MFIs lobbied to postpone by approximately six months their repayments to financial institutions that had lent to them on a wholesale basis. A group of Indian financial institutions subsequently submitted a proposal for the loan restructuring to the Reserve Bank of India (RBI), India’s central bank. As part of the proposal, the banks suggested restructuring the loans on a case by case basis only, rather than on an industry-wide level. RBI agreed to the rescheduling of loans given to MFIs contingent on the MFIs rescheduling loans to their clients [1].
Recently several MFIs threatened to file a suit against Yes Bank for recalling loans made to the MFIs totaling over USD 22 million. It is unclear whether the Yes Bank recalls are affected by the new agreement. However, in an effort to minimize the contagion of the debt crisis, RBI advocated for the banks to maintain funding to MFIs [2].
The Indian MFIs reporting data for 2009 to the Microfinance Information Exchange (MIX), the microfinance information clearinghouse, have an aggregate loan portfolio of USD 4.5 billion, total assets of USD 5.1 billion and 26.6 million active borrowers.
By Julie Moksim, Research Associate
[1] CNBC Money Control, News Center: “Banks agree to reschedule loans given to MFIs”, http://www.moneycontrol.com/news/business/banks-agree-to-reschedule-loans-given-to-mfis_510019.html
[2] Reserve Bank of India (RBI): “Meeting with Bankers on Credit to Microfinance Institutions (MFIs)”, http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=23621
MicroCapital.org Brief, November 15, 2010: India’s Microfinance Industry on Brink of “Collapse” Due to Credit Freeze in State of Andhra Pradesh, https://www.microcapital.org/microcapital-brief-indias-microfinance-industry-on-brink-of-collapse-due-to-credit-freeze-in-state-of-andhra-pradesh/
MicroCapital.org Brief, December 24, 2010: State Bank of India (SBI) Considers Restructuring Loans to “Non-performing” Microfinance Institutions (MFIs), https://www.microcapital.org/microfinance-brief-state-bank-of-india-sbi-considers-restructuring-loans-to-%e2%80%9cnon-performing%e2%80%9d-microfinance-institutions-mfis/#more-8888
MicroCapital.org Brief, January 5, 2011: Microfinance Institutions (MFIs) in India Take Legal Action Against Yes Bank for Loan Recall, https://www.microcapital.org/microcapital-brief-microfinance-institutions-mfis-in-india-take-legal-action-against-yes-bank-for-loan-recall/
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