India’s shadow banking crisis sparks credit crunch

July 03, 2019

The rise over the past decade of nimble lenders such as Kinara has played a crucial role in India’s recent economic growth. They have provided modest loans to millions of small businesses and consumers who would otherwise have had no access to credit. These nonbank financiers had come to account for a fifth of all new credit. Kinara and NBFCs that specialise in small personal loans argue their industry has been tainted by a handful of risky lenders who had secured funding from short-term sources such as mutual funds and lent to long-term projects such as luxury real estate development. “It obviously created a major shock to the system,” said Hardika Shah, Kinara Capital’s founder. Kinara specialises in loaning small businesses a few hundred thousand rupees at a time and has lent a total of about Rs12bn ($174m). “The first reaction was one of uncertainty, panic. Everything froze up.”