Kerala Floods Highlight Climate Risk to Indian Microfinance Lending
What happened
Analysis indicates that flood damage contributes to weaker loan collections and slippages within India's microfinance sector. A World Bank analysis of Northern Arc Capital's portfolios showed that during the 2018 Kerala floods, collection efficiency fell from 96% to 60% across 27,000 microfinance loans in nine districts. Microfinance lenders track indicators like portfolio at risk, but often do not diagnose the underlying cause of borrower delinquency.
Why it matters
Microfinance institutions in India serve households dependent on agriculture, small businesses, and informal work, making them highly exposed to climate events like floods and droughts. While conventional credit risks are monitored, climate-related credit risk remains less visible, posing a systemic risk to lending portfolios.
Who's involved
- KeralaIndian state where floods impacted microfinance collections
- IndiaNation where microfinance lending and climate risk are prevalent
- Bandhan BankIndian private sector bank that has linked floods to weaker collections
Who could feel it
Possible knock-on effectsThese are possibilities Brind reasoned out, not predictions, and not advice. Most are not stated in any report.
- Bandhan BankSpeculative
Bandhan Bank could face increased costs related to credit risk and weaker revenue from loan collections due to climate events.
- IndiaSpeculative
The Indian economy might see increased funding stress in the microfinance sector as climate-related risks become more apparent.
Keep exploring
The entities involved
- India
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Kerala
Indian state
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Bandhan Bank
Indian private sector bank
Nothing else this week.