For-profit MFIs and indebtedness of rural manufacturing households: implications for India's COVID-19 crisis

From social banking to for-profit MFIs, the rural economy in India has witnessed a sea change in public provisioning of credit. For-profit MFIs are now ubiquitous in rural landscapes, although they have been accused of unethical practices. The accusation appears to be loud, as COVID-19 has exasperated the debt servicing woes of borrowers. From the State of Assam to Punjab, the concerns of for-profit MFI borrowers during the pandemic echo. Manufacturing is one of the significant non-farm economic activities in rural areas. Like others, the households engaged in manufacturing activity also borrow from for-profit MFIs by forming joint liability groups (JLGs). The present study has tried to assess their exposure to for-profit MFI credit, both from household and enterprise perspectives, on the basis of a sample survey. The study finds early signs of over-indebtedness and the existence of inverse relationships between debt exposure and household or enterprise incomes.