Small MFIs in Odisha battle credit crunch

MFI remains one of the costliest models of financial inclusion

Smaller Micro Finance Institutions (MFIs) in Odisha are grappling with capital crunch as credit from banks and financial institutions has tapered. While the larger MFIs across the country are adequately capitalised, the smaller, home-bred institutions in the state have been let down by fund scarcity.

"The state-based smaller MFIs face the scarcity of funds, shortage of skilled staff and a dearth of capital to build a quality team. The increase in recent fraudulent chit cases in the sector have made the situation even worse as new clients very often view MFIs as Ponzi organisations," said Mohammad Amin, secretary, Odisha State Association of Financial Inclusion Institutions (OSAFII).

Currently, there are 20 MFIs operating in Odisha- this includes seven with roots in the state. The home-grown MFIs are Annapurna Microfinance Pvt Ltd, Adhikar Microfinance Pvt Ltd, GU Financial Service Pvt Ltd, Mahashakti Foundation, Sambandh FinServe Pvt Ltd, Swayanshree Mahila Samabaya Samity Ltd and Swayamshree Micro Credit Services. Collectively, all seven of them have been able to cover all the districts in Odisha, reached out to 7,62,241 active clients with a portfolio of Rs 1,054 crore as on March 2017.

However, micro finance is still viewed negatively by many stakeholders especially at the district level, Amin said. Besides this, there is inadequate financial literacy for the clients and sensitisation for the stakeholders at the block and district levels. The way forward, Amin said, lies in strengthening relationships with all key financial stakeholders in the state, promoting responsible finance, coordinating technical assistance for members and stakeholders and facilitating issue-based policy advocacy at different levels. He spoke at a conclave on 'Financial Inclusion in Odisha' organised by OSAFII.

H R Khan, former deputy governor with the Reserve Bank of India (RBI) said, “MFIs do provide a niche service in combining the formal and informal economies. But, it remains one of the costliest models of financial inclusion. Profitability is very important for both  the lender and the borrower for sustainable operations.”

Total outstanding disbursements by MFIs across the country stood at around Rs 46,000 crore. The outstanding portfolio in Odisha is Rs 3000 crore.