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The MFIs, operating in AP and Telangana are facing funding constraints, recovery hassles and have hardly added new borrowers. They had to close branches, substantially trim the workforce and in some cases, even make an exit.
"Banks' sanctions to MFIs are now coming with the condition that the funds should not be used towards AP operations," says M Udaia Kumar, managing director of Share Microfin Limited.
However, after the RBI created a new category of finance company called NBFC-MFI in December 2011, funding situation slowly started improving as many MFIs adopted the new identity.
Before the AP crisis, 40 MFIs were operating in the state, of which 14 were NBFC-MFIs and 26 were NGOs and trust MFIs. Among the NBFC-MFIs, Trident and Sharadha have exited, and around 90 per cent of the NGO and trust MFIs no longer operate here, said Share Microfin. Share has a pan-India presence of 751 branches in 18 states. In AP, it has just 177 compared with 454 before the crisis.
SKS Microfinance, the only listed MFI, is a shadow of its past in the state, even as it is growing at a healthy pace in the rest of India.
According to MFIN, a network of 50 MFIs in the country, the gross loan portfolio (GLP) of SKS grew 47 per cent to Rs 4,171 crore in FY15, excluding Andhra Pradesh. In its annual report on the BSE website, SKS said GLP grew 34 per cent to Rs 4,184.5 in FY15. Reading the two reports together, it can be safely concluded that in the undivided AP, its GLP plunged to Rs 13 crore in FY15 from Rs 277 crore in FY14. SKS did not comment for this story.
GLP is the outstanding principal for all client loans, including current, delinquent and restructured loans, but not loans that have been written off or that extended to employees.
Nearly 80 to 85 per cent of all financial resources disbursed by AP MFIs are raised from banks and other financial institutions. "The limited funding has also given rise to liquidity issues and the resultant losses accrued have eroded the net worth of the companies with large operations in AP," said Udaia Kumar.
The state government brought in the Andhra Pradesh Microfinance Institutions (regulation of money lending) Act, 2010, after reports of unethical recovery methods, which allegedly led to suicides by borrowers.
MFIs are also now statutorily required to update their clients' database with registered Credit Bureaus. Now over 9 million from AP and Telangana are registered as defaulters. Udaia Kumar shares that around Rs 4,500 crore relating to NBFC-MFIs' exposure in AP has been impacted.
Spandana, which had a Rs 1,600-crore portfolio at the time of the crisis in 2010 in Andhra Pradesh, recovered Rs 1,000 crore and had to write off Rs 600 crore. "We are still struggling. Though we have been generating profit for the last two years, we have a negative net worth," said a Spandana official.
Spandana operates in 12 states including AP and Telangana, and now its biggest markets are Madhya Pradesh and Karnataka. However, in terms of portfolio, Andhra Pradesh is still the biggest but it is on their books as bad loans. "We are just carrying on with whatever is the portfolio. We do continuous follow up but it is costing us more. To recover Re 1, we are spending nearly Rs 100 in AP," he said.
Banks, however, justify their stand. A top Andhra Bank official said, after the enactment of the MFI Act, even stronger MFIs were unable to effect recoveries and could not meet their banking commitments thus leading to NPAs.
"SKS, one of the leading MFIs in the country, has written-off its entire portfolio to overcome the situation. As MFI activity is not encouraging in the state and to avoid such slippages, we are hesitant to provide funds for AP operations," he reasons.
They also see government initiatives working well in reaching out the poor. Microcredit through banks and government-supported institutions like Streenidhi has almost reached saturation with bank linkage reaching Rs 14,000 crore in AP. "We are extending finance to MFIs for onward lending to poor in other states where bank linkage has not yet taken off much when compared with Andhra Pradesh and Telangana," he said.
The handful of MFIs, which had managed to survive, are now caught in a peculiar situation. They can't leave the market because of the huge infrastructure they have built, even though earnings are a constraint.
