Global Financial Crisis Creates Challenge for Indian MFIs
Udgirkar, T.

Financing for the poor is getting more frugal as Indian MFIs face the heat of the global financial meltdown. There has been a virtual halt in fresh disbursements to MFIs by banks and financial institutions, coupled with a hike of over 200 basis points in interest rates. Banks are also asking for personal guarantees from directors of MFIs. A few banks have hiked the security margins from 10% to 25% over the loan amount sanctioned to banks. As a result, MFIs are unable to use even sanctioned funds.

"Banks are tightening credit lines," says Adds Padmaja Reddy, Managing Director of Spandana. "Current sanctions are available but disbursements are getting delayed." Share Microfin's Managing Director M Udaia Kumar says, "The situation is alarming in India for MFIs since it affects the credibility of the organization. Further, it strains the relationship of trust built with clients and may result in clients not making timely repayments."

Bankers, however, deny a slowdown in lending to MFIs and self help groups. "One doesn't see a reason for reduction in the quantum of lending to these institutions. The rate at which we lend to MFIs is dependent on a number of factors including the rating of such agencies. These rates may have marginally gone up due to the prevailing liquidity situations," said one banker.

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