MICROCAPITAL BRIEF: Microloan Delinquencies Rise from 0.5% to 11% Following Demonetization in India

India Ratings, a subsidiary of US-based Fitch Group, recently announced that its “0+ days delinquency index” increased from 0.45 percent to 10.82 percent in the four months following November 2016 and thus concluded that the Indian government’s demonetization had a significant negative effect on microlenders [1]. The collection ratios of publicly-listed Indian microfinance lenders range from 60 percent to 95 percent as of March 2017, whereas they averaged 99 percent before demonetization [2].

In November 2016, the Indian government removed all banknotes worth INR 500 (USD 7.72) and INR 1000 (USD 15.45) from circulation. These two denominations had accounted for approximately 86 percent of the total value of notes in circulation [4].

By Matthew O’Neill, Research Associate

Sources and Additional Resources:

[1] Recovery of Microfinance Loans a Concern Post-Demonetisation:
http://economictimes.indiatimes.com/industry/banking/finance/recovery-of-micro-finance-loans-still-a-concern-post-demonetisation-india-ratings/articleshow/58733315.cms

[2] MFIs looking at Risk of Rising Delinquencies, Credit Costs Admit Slow Collections:
http://economictimes.indiatimes.com/markets/stocks/news/mfis-looking-at-risk-of-rising-delinquencies-credit-costs-amid-slow-collections/articleshow/57896650.cms

[3] MFI Sector Yet to Get Over Demonetisation Impact:
http://economictimes.indiatimes.com/industry/banking/finance/mfi-sector-yet-to-get-over-demonetisation-impact/articleshow/56810668.cms

[4] Indian Demonetization:
https://www.bloombergquint.com/business/2016/11/09/the-beginning-of-the-end-of-the-parallel-economy-in-india

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