MFI's on extinction

• MFI  are those who lend money to borrowers who are into small business. These are village women’s, farmers etc   for small business.
• Now these borrowers have failed to pay the interest amt since few months and also the repayment of principle amount is not seen.
• Since Oct 2010 MFI have been seeing a shortfall in interest income and cash. That was the first hit, now Jan 2011 i.e. the next quarter MFI will face the new hit: provisioning for bad loans.
• This happened because borrowers went on borrowing to pay previous loans and so borrowers were left with multiple loans now they know that they are not able to repay, also they were not allowed to take further debt from MFI and have stop paying previous debts.
• So whose at the loss finally, the MFI’s.
• Can some go and insure these debts or bail out them, No this will not happen because nobody will buy such toxic assets.
• So MFI’s are to extinction they include – Spandana Spoorthy Financial, Micro credit ratings, Trident micro fin, Star Microfin service etc.
• Whose going to get affected the most after collapse of MFI they are banks who get affected the most because banks have lended Rs. 20,000 Cr to MFI’s this collapse of MFI’s shall bring a small downturn in SENSEX because the banking sector will get affected the most