The overdues from borrowers of Hyderabad-based microfinance institution Spandana Sphoorty Financial Limited have crossed Rs 1,400 crore in the Andhra Pradesh market following the enactment of the MFI Act.
“The Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Act, 2010 has hit the business and the company has failed to collect Rs 1,400 crore from the borrowers in the last two years,” Nitin Agarwal, vice-president (strategy and risk), Spandana, said.
During this period, Spandana closed 400 branches and administrative units in the state. “We have closed some of the branches and merged some with other branches. The number of staff too has been reduced,” Agarwal said. In the stressful business scenario, Spandana saw attrition of 8,000 employees, of which 4,000 resigned from AP operations. “We had 14,000 employees at the peak of our business in 2010. This has now gone down to 6,000,” he said. Credit assistances too had come down to 1,000 from the earlier 6,000.
“We are doing fresh recruitment for some markets, though small in numbers, besides focusing on retaining the existing ones,” he said.
The MFI has not added any borrower in AP post the Act. While business is slowing down in AP, non-AP markets including in Maharashtra, Madhya Pradesh, Karnataka, Kerala, Goa and Orissa, were seeing good growth. “Business is moving in rotation - we are seeing 10-15 per cent growth in the number of new customers in some markets and the same negative growth in some other,” he said.
Spandana is looking at expanding in existing markets, to benefit from its existing resources. “We are moving forward strategically,” said Padmaja Reddy, managing director of Spandana Sphoorty. Reddy said the industry had become unpredictable with continuous changing guidelines of banks and the regulator. “The regulator keeps changing its policy, and we are quite unaware what new rule it will come up with after two months. Once a new guideline comes, and by the time we try to formulate a strategy, a new one comes, so we have stopped bringing innovation or new products,” she said. Agarwal pointed out that the MFI activities had slowed down in the state while at the same time informal lending had grown with the mushrooming of moneylenders and players with around 100 borrowers.
“The lending rates in the informal sector have gone up to five-six per cent from the earlier two per cent per month, which translates to about 80 per cent per annum. The MFI lending rates are 24-26 per cent per annum,” he added.
Spandana Sphoorty, which started operation in 2005, saw a huge jump in operations and loan portfolio till 2010. Its total loan portfolio is estimated at Rs 2,700 crore.