It would help if MFIs were to get better funding

Microfinance institutions (MFIs) are under stress. The Financial Stability Report of December 2024 notes that in the first half of 2024-25 (H1FY25), the share of stressed assets in the 31-180 days-past-due segment rose to 4.30 per cent from 2.15 per cent in FY24. JIJI MAMMEN, executive director (ED) and chief executive officer (CEO) of Sa-Dhan, a self-regulatory organisation for the microfinance sector, interacted with Raghu Mohan in a telephonic interview on issues facing MFIs. Edited excerpts:

- JIJI MAMMEN ED & CEO Sa-Dhan

How do you think the Karnataka Microloan and Small Prevention Ordinance, 2025 will impact MFIs? The Ordinance has excluded Reserve Bank of India (RBI)-regulated entities (REs) which are in this business. But it has created collateral damage for the sector. The common person on the field may not be able to differentiate between REs and non-REs.

Then, borrowers may also use this to their advantage: they can take the alibi of the Ordinance to say it has exempted them from repayments. We have seen collections dip after the Ordinance was issued on 12th February. It was something like 95-96 per cent earlier, but has gone down to around 85-90 per cent. But I feel that in one or two months, people will start realising the issues involved and normalcy will return.

It is said the problem starts at the on-boarding stage. But when you have Aadhaar and other identity proofs which are interlinked, what is the issue out here?