A local woman signs a register to receive a loan, as a micro finance company employee looks on. (Photographer: Adeel Halim/Bloomberg)

Cash Crunch Forces Microfinance Firms To Go Slow On Disbursements, Collections

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The cash crunch has made it difficult for Ujjivan Financial Services’ lenders to repay their loans, said Samit Ghosh, the managing director and chief executive officer of the microfinance institution.

Demonetisation has had a major impact on us (microfinance companies) because our customers live largely on a cash-based economy...currency availability was initially a problem for them and to repay on time had become a problem.
Samit Ghosh, CEO and MD, Ujjivan Financial Services

The microfinance lender was forced to halt disbursements and collections for five days after Narendra Modi made the surprise announcement on November 8. The rate of repayment fell marginally to 91 percent in November. Similarly, the total amount lent by the company also fell to Rs 553 crore.

Microfinance companies are bound to feel an impact, at least in the short term, added Ghosh. A lot will depend on the normalisation of currency flow, he added.

Chandra Shekhar Ghosh, the managing director and the chief executive officer of Bandhan Bank sounded more positive on the return to normalcy.

Ghosh told BloombergQuint that the bank plans to use the Rs 3,500 crore deposited with the organisation since demonetisation to ramp up disbursements. He hoped for a 25 basis point rate cut by the Reserve Bank of India on December 7.

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