For microfinance lenders, covid-19 is an existential threat

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IN NORMAL TIMES, says Samir Shah, of Dvara Trust, a private firm based in Chennai in southern India that helps bring financial services to the rural poor, default rates on the small loans it promotes are about 5%. But these days, more than 90% of borrowers are unable to repay the loans even if they want to and have the money. Traditional microfinance is a personal business. Repayment is in cash to an agent who visits. Like so much of the world, India has been in lockdown, and no exception is made for debt-collectors. But the banks and investors from whom Dvara’s lenders get their funds do expect to be repaid. The lenders are in a bind. Most of these microfinance institutions (MFIs) have a cushion of a couple of months’ cash. When that is exhausted, their future will be in jeopardy.