The microfinance industry witnessing a of 100% repayment despite interest rates as high as 35% faced a rude shock from Kolar in Karnataka, a place once famous for its gold fields. The Anjuman Committee issued a directive to the district’s mosques forbidding believers from any further transactions with MFIs. This fatwa was a resultant of the dwindling incomes owing to slump in silk and handicraft industry along with growing discontent against MFIs’ loan recovery tactics. Almost 43 MFIs operational in Kolar lost as high as 60 crore.

This incident could very well be the tip of the iceberg for the Indian MFI industry. There is growing concern among the regulators, lenders and the borrowers and many are distancing themselves from the gold rush and evaluating future options.

RBI deputy governor Usha Thorat too agrees that there is aggressive pushing of loans to groups without ascertaining the repayment capacity of the ultimate borrowers. However she dismissed any likelihood of a crisis similar to the one of subprime crisis in US.