ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Post-lockdown Income Recovery and Loan Moratoriums in Rural India

Is Borrowing Relief Ending Too Soon?

The Reserve Bank of India’s loan repayment moratorium, announced at the end of March 2020 and extended to 31 August 2020, was conceptualised and implemented as a COVID-19 crisis-response measure. While the moratorium ended, the crisis has not. Findings from a survey of 1,452 rural microfinance clients in Maharashtra, conducted in July–August 2020, show that a critical majority of borrowers continue to experience significant income deficits, and will not be in a position to service their debts for the foreseeable future.

Stringent restrictions imposed by governments to control the spread of COVID-19 have halted many economic activities, leading to job and revenue losses at an unprecedented scale. India, which implemented a strict lockdown, has been particularly badly affected. The gross domestic product (GDP) fell by a staggering 23.9% in the April–June 2020 quarter, compared with same quarter in 2019. Efforts have been made to reopen the economy. However, this is occurring amid sharply rising numbers of COVID-19 cases and the imposition of sudden local lockdowns to bring these under control.

Serious knock-on effects of the prolonged shutdown and continuing coronavirus crisis are unfolding, including for the microfinance sector, which counts over 50 million low-income groups among its clients. Disrupted household and enterprise cash flows have significantly affected borrowers’ ability to repay loans. The debt repayment moratorium given by the Reserve Bank of India (RBI) for initially three and later six months provided welcome relief to borrowers, allowing them to suspend repayments without risking black marks on their credit scores. This has, however, come at the expense of microfinance institutions (MFIs), many of which have not received similar debt-relief measures from their own lenders.

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Updated On : 9th Jan, 2021

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