Representative illustration of a loan.
Credit: iStock Photo
Bengaluru: Amidst rising reports of harassment and suicides in Karnataka on account of defaults in microfinance loans, and protests against microfinance institutions (MFI), the self-regulated organisation Microfinance Industry Network (MFIN) and the Association of Karnataka Microfinance Institutions (AKMI) on Thursday insisted that these cannot be attributed to regulated entities.
“In Karnataka, field operations have been normal all along but since May 2024, field operators have had some stress in their districts,” said Rama Kamaraju, head, state initiatives, MFIN.
He acknowledged that that news reports point to 34 cases of harassments associated with MFIs, 18 pertaining to collection methods and one of excess lending. When pointed out that the state had also seen 12 suicides between May and December, beside the two this month, he argued, “The prime reason would be some family dispute. It is not as if they are taking loans from only regulated MFIs.”
The industry bodies’ representatives attributed the defaults to informal lenders in areas like Ramanagara who ask for up to 40% interest rate per week on loans. On the other hand, they underscored, regulated entities lend at 19-25% interest rate.
According to Manjunatha MS, assistant vice president, state initiatives, South, MFIN, areas like Belagavi, Kalaburagi, Tumkur, Chamarajanagar, Ramanagara are facing the highest problems (like protests, fraudulent activity and defaults), since May 2024. However, they dissed claims of huge defaults in Mysuru. They argued that reports attributing people migrating out of a particular village in the coffee plantations due to recovery harassments were untrue; these were seasonal migrations.
The bodies further urged for measures strengthening supervision and oversight on “unregulated, unsupervised, non-transparent” entities which are involved in microfinance loans.
When it comes to recovery practices, centre meetings take place outside somebody’s house or in a public place. In the case of an individual loan, however, they go to the borrower’s house to make the recovery.
Some default-prevention mechanisms include not sanctioning multiple loans to the same individual without a detailed assessment. For example, while it is mandated that a that household with a Rs 3 lakh annual income can be lent 50% of their income, the MFIs are refusing to lend to households that have already accessed over Rs 2 lakh loans.
Kamaraju said that the recent reports of protests against MFIs are from a small section of the ill-informed individuals with the aid of unauthorised entities, indulging in unscrupulous rumour-mongering. “We wish to assure you all that we follow a very well calibrated advisory approach and have our eye on the ball at all times,” he said.
Venkatesh N, MD IIFL Samasta Finance Ltd, said “In the past few months, some stress has been noticed in collections from borrowers who have taken loans from multiple lenders. However, the field reports from December seem to show positive signals of a turnaround, and I feel confident in observing these positive trends over the next few quarters as things normalise.”