Lenders Forcing Micro-Financiers To Park FDs With Them As Security Against Fresh Advances: Report

Small and medium-sized micro financiers are being forced by some lenders to keep their fixed deposits with them as security against fresh advances, even though exposures to micro-lenders are guaranteed by the government.

Back in June, the central government had rolled out a credit guarantee scheme covering 75 per cent of bank loans to micro-finance institutions (MFIs) in case of defaults.

“Several banks -- both in the public sector and private sector -- are forcing small and medium sized MFIs to park fixed deposits with them as a security against loans,” micro lenders industry body Sa-Dhan executive director P Satish confirmed to the Economic Times.

He added, “This is despite the government's guarantee on bank loans to MFIs.”

In June, Union Finance Minister Nirmala Sitharaman had assured guarantee to banks for loans to NBFC-MFIs or MFIs on lending up to Rs 1.25 lakh. Even the interest rate by banks for loans under this scheme was restricted to about 2 per cent above the bank’s marginal cost based lending rate (MCLR).

The scheme overall targets increasing the flow of credit to about 2.5 million micro borrowers after the lending to them was slowed down by MFIs following the Covid-19 pandemic.

However, this new insistence by banks is reportedly defeating the purpose of this scheme and the Department of Financial Services (DFS) has apparently been apprised of these developments as well.