The ongoing repercussions of the government’s decision to demonetise high-value currency notes are being felt in particular by cash-intensive sectors such as the microfinance industry, according to microfinance company Satin Creditcare.
“It’s been a pretty tough time (post demonetisation),” H.P. Singh, chairman and managing director of Satin Creditcare, said in an interview. “The cash supply position has been very bad in the northern states of Uttar Pradesh, Punjab… in both rural and urban areas. People say there are no lines in Mumbai or in the south, but if you go to U.P., people are still only getting ₹500 per week.”
“The problem is all across,” Mr. Singh added. “That has taken a toll on our collection efficiency. It used to be 99.8%. Women as a gender usually don’t default, and our instalments are very small. Now, we are closer to 80-85% collection efficiency.”
The reason for this is that cash-intensive industries across the north of India are now struggling to remain afloat.
“If you go to Agra, then they are in the business of shoe uppers or shoe lowers,” Mr. Singh said. “Vendors have not been able to pay because there is no cash. You go to Bareilly and the zari workers have no work because there is no cash, and everything over there runs on cash. You go down to Firozabad, which is known for bangle-making, and there is no work there.”
Joint liability model
Mr. Singh’s company primarily follows the Grameen model of lending, or a joint liability group model, where it lends to groups of about 15 rural women, each of whom is collateral for the other women in the group. Social and peer pressure ensures timely repayment.
However, various rules regarding the withdrawal of cash from banks post demonetisation have even hit the company’s ability to disburse loans to these women entrepreneurs, according to Mr. Singh.
‘Inaccessible ₹800 cr.’
“We can’t withdraw enough to loan out, since our withdrawal limit is ₹50,000,” he said. “For a company our size, which disburses ₹300-400 crore every month, we are not able to withdraw the required cash. So, we are only doing disbursement of the cash collections that are being repaid to us. We have about ₹800 crore in our accounts waiting to be disbursed as loans, but we can’t touch it!”
Mr. Singh said that the move towards digital payments remains a distant dream, completely impractical for the reality of the situation in rural India at the moment.
“We live in the real world. How will that poor, uneducated woman first get a smartphone, download the app and then do digital banking?” he said. “Most have been taught to even write their names by us, when all they know is to put their thumbprint!”
“And why would they do it?” Mr. Singh asked. “They say that they can’t get cash out from the banks for their own consumption, so even if I put the money in her account through a cheque or through electronic transfer, she won’t be able to withdraw it.”
Regarding his business and the industry, Mr. Singh said that this year would definitely see poorer performance due to demonetisation. “It depends on the level you are dealing in,” he said. “We are more cash-intensive, so we will be hit harder. Others are less cash-intensive, so they will be hit less.”
“But the point is that every cash transaction is not a black transaction,” he added. “We have taken ourselves backwards by at least 2-3 years,” according to Mr. Singh.