Card usage surges, micro-lending grinds to a halt

flip side:Micro lenders which serve the poor and the weaker sections of the society have taken a hit due to the ban on the currency notes.— PHOTO: K. Murali Kumar

flip side:Micro lenders which serve the poor and the weaker sections of the society have taken a hit due to the ban on the currency notes.— PHOTO: K. Murali Kumar  

Consumers have been using cards to pay for essential things like grocery and medicines apart from entertainment and at restaurants

The country’s micro finance sector (MFI), which essentially extends small loans to the poor and weaker section of the society, is one of the worst hit by the demonetisation move of the Centre.

The micro finance sector extends loans and well as accepts repayments in cash. With Rs.500 and Rs.1,000 notes being demonetised, both business and recovery of loans have been impacted badly.

Repayments have fallen to below 10 per cent since the demonetisation drive, which is typically 100 per cent for micro lenders. Loans worth Rs.650 crore has become over due and the numbers will go up.

Microfinance Institutions Network (MFIN) — the self regulatory body of micro lenders — has written to both the Finance Ministry as well as the banking regulator for allowing them to accept Rs.500 and Rs.1,000 bank notes.

“We have made a representation to the ministry as well as to the RBI, saying, give us the same dispensation that were given to banks,” Ratna Vishwanathan, chief executive officer of MFIN told The Hindu .

“Because we are saying, we have just one product which is a loan product , we don’t collect deposits. All out clients have definite KYC, all their information is loaded on the credit bureau which cannot be manipulated,” Ms. Vishwanathan said. Micro lenders, which are registered as non-banking finance company and regulated by RBI, should be allowed to accept such denomination notes, she said.

On November 8, the Centre announced that Rs.500 and Rs.1,000 denomination notes ceased to be a legal tender and those notes needs to be exchanged at bank branches and post offices.

There has long queues outside bank branches and automated teller machines (ATM) run out of cash which is causing inconvenience to the public.

“There is short supply of money in the market. In rural areas in particularly, you do not have access to ATMs or bank branches,” Ms. Vishwanathan said. “They have post office and sub post offices. In banks itself, money is taking so long to reach. There is a challenge there.”

Ms. Vishwanathan explains that since client base of the micro finance sector is fragile as the customers have sporadic income, they plan their repayment accordingly. Repayments are collected by MFIs on weekly, fortnightly and monthly basis, as per RBI directions.

“They keep aside that money for that week. But then what happens is that, if you do not collect it that week, and then other priorities come up and they end up spending that money,” she said.

The micro finance institutions which are a part of MFIN, has 3.5 crore customers from low income households across India, of which ‘99.9 per cent is women’, Ms. Viswanathan said.

MFIN has issued an advisory to all its members to defer collection for a week.

“We have deferred collection of Rs. 650-odd crore. Obviously it will go up as more days pass,” she added.

Spike in debit cards

Centre’s demonetisation move has led to a spike in the usage of debit and credit cards, especially in the small ticket size segment as currency notes are increasingly becoming scarce in banks and ATMs.

The usage of cards for transactions less than Rs.500 has more than doubled since November 8, when the government announced that Rs.500 and Rs.1,000 notes would no longer be accepted as legal tender.

Consumers have been mostly using cards to pay for everyday essential things like grocery and medicines apart from categories like entertainment and restaurants.

“The overall transaction count has increased by more than 65 per cent showing significant shift from cash to card,” said Rajeev Agrawal, chief executive officer, Innoviti Payment Solutions, a Bengaluru-based payment gateway company that processes transactions worth $2 billion annually.

“The overall average transaction size, however, has dropped by around 30 per cent suggesting that lot of the new transactions are relatively lower ticket value spends, which were earlier done using cash.”

Less than Rs.250

A further analysis of the data shows that the number of online transactions of less than Rs.250 increased by 177 per cent post demonetisation. Further, transactions in the range of Rs.250-500 rose 135 per cent. The surge in the Rs.500-750 bracket has been only 75 per cent while there has been no notable spike in transactions worth over Rs.750.

Industry participants agree that the Centre’s move would lead to an increase in the usage of credit and debit cards leading to the twin objectives of financial inclusion and making India a cashless society.

“It is likely to boost credit and debit card transactions as well as usage of e-wallets, particularly for small ticket size transactions,” said Deepak Premnarayen, chairman, FirstRand Bank India.

“In large cash intensive businesses such as real estate, there can be sufficient motivation to move explicitly to transactions in alternative storage of value, including Bitcoins,” added Mr. Premnarayen who is also the President of IMC Chamber of Commerce and Industry.

Debit cards

Interestingly, overall increase in transactions is more skewed towards debit cards with over 70 per cent surge when compared to the 40 per cent rise in credit card usage. This suggests that first time card usage by till now inactive debit cardholders may be driving the transaction jump, says Mr. Agrawal.

Categories like entertainment, restaurant and liquor saw a jump in the range of 160-190 per cent suggesting that consumers are not postponing their spending but just migrating from cash to cards.

However, categories like apparel and jewellery saw only a marginal upswing hinting at postponement of consumer spending in these categories.

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