Still grappling with the nitty gritties of the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Ordinance, 2010, the microfinance industry expects lending to be lower this festive season.
Microfinance institutions (MFIs) generally see hectic activities during the Dussehra-Diwali season, but this time, the Andhra Pradesh government’s recent ordinance to rein in MFIs has hit the business.
Last year, MFIs in Andhra lent about Rs 300 crore a week during this season. This year, they had expected the lending to be about Rs 1,500 crore for the whole season (around four weeks). Lending has almost stopped after the ordinance was issued on October 15.
According to the Microfinance Institutions Network (MFIN), there is increasing reluctance on the part of bankers to lend to MFIs, as recoveries are not happening. “Collections at the ground level are not happening. On an average, this used to about Rs 200 crore a week, but now it is just Rs 50 crore,” said MFIN member and Trident Microfinance Managing Director P Kishore Kumar.
The government had earlier asked MFIs to shift to a monthly mode of collections prospectively, to reduce the peer pressure on borrowers. However, some officials say repayment should be retrospective. “This will not be possible, as the interest rate is calculated for a weekly repayment,” he said.
According to him, MFIN has requested the government to allow recovery on a weekly basis at least for some time, particularly in urban areas, as the earning cycles of borrowers are more suited to a weekly collection.
More From This Section
Among the MFIs, Basix collects on a monthly basis, while Spandana and Trident go for both weekly and monthly. A bulk of them, however, thrive on weekly collections only. Though a joint action committee, comprising members from the MFIN and the state government, has already been announced, it is yet to discuss issues relating to MFIs.
Kumar said Trident borrowed Rs 10-12 crore for disbursals and repaid Rs 8-10 crore on a monthly basis. "We are not paying back to banks now, as we are not able to make collections. The banks, too, are not lending us,'' he said.
Basix, in a filing to the government, had mentioned it charged interest between 21.2 per cent and 60.5 per cent in Khammam district. However, CEO Sajeev Viswanathan clarified that errors crept in due to data migration and the actual interest rate was 32 per cent to 34 per cent.
Basix will resubmit the data to the government. Giving the break-up of the interest charges, he said the actual interest charged was 24 per cent and with other charges, including loan processing and insurance, this came to 32 to 34 per cent.
SKS Microfinance charges an effective interest of 61.24 per cent in Rangareddy district, according to a government report. It has given loans worth Rs 59.52 crore to 53,645 borrowers. The company has collected Rs 29.34 crore, including Rs 26.09 crore as principal amount and Rs 3.25 crore as interest. The outstanding in the district is Rs 33.43 crore.
R Subrahmanyam, principal secretary, rural development department, said the government would make the entire data public by publishing it in 30,000-plus village samaikyas. Since the ordinance was issued, 19 cases have been filed so far, including on Spandana, Asmita, Share and SKS.
Credit Bureau
The government is creating an information technology backbone to upload the credit history of borrowers. The database will include loans taken from banks and MFIs as well. This will be a full-scale credit bureau. With ration card details integrated into this, the database will indicate the total loan burden on a household and the date of loan maturity.
MFIs are setting up two credit bureaus and details of about 30 million customers have been updated.