Demonetization Anniversary: Impact on Micro Finance Industry


As we are approaching the first anniversary of demonetisation, Mr Kuldip Maity, MD & CEO, Village Financial Services weighs the impact of Demonetisation on Micro Finance Industry.


He says, “The government’s move to demonetize high-value currency notes, announced on November 8, 2016, was meant to weed out unaccounted wealth, and curb counterfeiting. Microfinance Industry was shaken by the sudden announcement. As this sector is cash driven, the whole industry faced tremendous challenges in the first few months of demonetization. There were issues related to both loan disbursement and repayment.


It is heartening to watch the industry recovering fast. As we near the first anniversary of the withdrawal of 500 and 1000 currency notes, we have been able to overcome the initial impact of demonetization.


However, it has been argued that the objectives achieved were very little when compared to the disruption witnessed by the economy in the aftermath of demonetization.


A recent analysis from MFIN suggests that the MFIs registered a decline in the number of clients, total loans disbursement and also a decline in average loan disbursed per account in the post-demonetization period compared to three quarters in the pre-demonetisation period. But now there is recovery in sight in the coming quarters.


Amidst all these pain, we have to see the long term benefits also. Post demonetization, Technology, and Digitization have now become a priority for MFIs. Digital transactions got a major boost. The whole industry is thinking about gradually going paperless.