Credit binge haunts microfinance firms

Microfin, mega woes Analysts say post-covid credit binge drew in many borrowers.

- Shayan Ghosh & Varun Sood

Microfinance lenders that splashed out money to indebted individuals are now struggling to get it back, raising concerns that payment delays could show up on balance sheets soon.

Leading microfinance companies including CreditAccess Grameen, Fusion Finance and Equitas Small Finance Bank have warned that many of their customers may be overleveraged, after discovering that some have four or more active loans.

Industry officials and analysts identified three reasons for the state of things: One, a post-covid credit binge that drew in many borrowers; two, employees chasing disbursement targets pushing loans to those who are already indebted; and three, delayed updates of data from credit bureaus that lenders rely on to check applicants' existing liabilities.

At India's largest non-bank microlender CreditAccess Grameen, 26.3% borrowers are unique to it. Then, 19.9% of the borrowers have loans from CA Grameen and two more lenders; and 15.3% have four or more lenders apart from CA Grameen, as of August. This was the first time the lender shared data on such an overlap.

Udaya Kumar Hebbar, managing director of CA Grameen, said it has observed a temporary increase in delinquencies across various geographies. "A segment of over-leveraged borrowers with lower cash flow also are part of this delinquent bucket," Hebbar told analysts on 25 October.