India's Microfinance Sector Hit As Defaults Surge In COVID-19

Loan collection efficiency across the total loan pool has fallen to about 70 per cent from a peak of nearly 95 per cent in March, analysts say, indicating a potential build up in stress.

Small loan specialists in India that typically cater to people without bank accounts are facing a jump in pandemic-related defaults that could force some of them out of business, industry experts warn. Loans overdue by 30 days are expected to reach 14-16 per cent of all so-called microfinance loans in the immediate aftermath of the second COVID-19 wave sweeping India, said Krishnan Sitaraman, senior director at credit rating agency CRISIL. That's higher than 6-7 per cent in March, before the second wave took hold, and also above the 11.7 per cent reached in March 2017 after India's demonetisation drive - an attempt to boost digital transactions and crack down on undeclared money that also hit microfinance lenders hard. "Older loans that were taken in 2019 or early 2020 are at a higher risk of defaults and they form about 60-65 per cent of the loan book for lenders," said Harsh Shrivastava, former head of the Microfinance Institutions Network, an association representing the sector in India.