Microfinance institutions in West Bengal are now facing a resources crunch and have come together to convince their bankers for loans to resume normal lending operations. The institutions have been forced to slash loan disbursement by 40 to 50 per cent.

Banks have stopped lending to MFIs over fears of non-payment of their dues. Their fears have been triggered by a crisis in Andhra Pradesh, where egged opn by local politicians, the borrowers started defaulting on payments wilfully.

Andhra Pradesh accounts for almost a third of MFIs' outstanding loans. Banks have a Rs11,000-crore exposure to MFIs.

The decision of banks to avoid further exposure in the MFI sector continues to have a trickle effect in West Bengal too.

Micro lenders in West Bengal say they are in a desperate position for want of funds to meet credit demand from poor borrowers, forcing them to reduce the scale of their operations.
In West Benal MFIs are trying to convince bankers that they are different from their counterparts in Andhra Pradesh and would diligently follow a code of conduct, prescribed by Microfinance Institutions Network, the umbrella body of all MFIs registered as NBFCs.

The code, drawn up by the MFIs industry body, has placed certain restrictions on their operations to safeguard the interest of their poor bororwers. MFIs in Bengal are also in talks with development institutions like SIDBI and NABARD to beat the stiff liquidity crisis, which seems to be fast spinning out of their hands.