Karnataka Ordinance Does What Microlenders Feared

Collection efficiency of NBFC MFIs has fallen below 90% in northern districts of Karnataka

- Gopika Gopakumar

Parts of rural Karnataka have started showing initial signs of distress for microlenders, following the notification of the new ordinance that aims to protect borrowers from harassment by microfinance institutions (MFIs).

According to field reports, the collection efficiency of microfinance-focused non-bank financial companies (NBFC-MFIs) has fallen below 90% in northern districts of Karnataka, said two bankers on the condition of anonymity.

"There is confusion and chaos at the ground level. In some districts, borrowers are misbehaving or are being told not to repay," said the first banker cited earlier. "Districts like Gulbarga and Belgaum are worst affected."

Banks and NBFC-MFIs like CreditAccess Grameen, IIFL Samasta, Ujjivan Small Finance Bank are some of the largest players in Karnataka. According to the bankers cited earlier, centre managers and collection agents of MFIs are being told to go slow and not to push the borrowers too much into repaying.

"Collection agents of most MFIs are playing it safe as they are now being told not to chase borrowers and put pressure on them. They are also being asked not to go for recoveries after 6 pm," said a banker cited earlier.