Multiple borrowing in the micro-credit sector does exist, despite claims to the contrary. Such borrowing, from both the formal and informal sectors, has been identified as one of the main causes of rural indebtedness.

A study conducted recently by the NCAER Centre for Macro Consumer Research point out that “multiple borrowing exist and is due to credit constraints.” The study was conducted in five clusters, including Hyderabad, Kolkata, Chennai and Jaipur, involving a sample of about 11,000 micro borrowers.

It reveals that about 11 per cent of the borrowers had multiple loans, of which, 21 per cent involved a loan from microfinance institutions. The highest was in Chennai cluster (7.5 per cent), followed by Hyderabad with 2.3 per cent.

Multiple borrowing was captured in the sample only if a household had two or more loans from a distinct source.

Multiple borrowings become a cause for concern especially if they are used to pay off existing debts.

The study revealed that about 42 per cent of rural borrowings from MFIs was for business expansion, the share being higher in the Kolkata and Hyderabad clusters.

The gross disbursements by MFIs last year was Rs 20,000 crore, down 38 per cent over the previous fiscal. The top 10 MFIs account for almost 82 per cent of this disbursement.

Latest data released by the Micro Finance Institutions Network reveal that the average loan outstanding per client increased only marginally to Rs 6,783 last year from Rs 6582 in the previous.

The study further reveals that informal loans accounted for almost 46 per cent of the micro credit. “The dominance of informal sources, made attractive by ease of access, suggests that we may not have as yet seen the end of the once ubiquitous moneylenders,” it says.

> amitmitra@thehindu.co.in

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