After SKS, more MFIs to cut exposure to Andhra

State accounts for 25% of their overall business.

Many microfinance institutions (MFIs) are considering reducing their business in Andhra Pradesh after the state government decided to continue with the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act.

State-based Share Microfinance and Spandana Spoorthy said they would reduce their exposure to the state from 40 per cent to 5-10 per cent if the state government continued with the Act.

Last week, SKS Microfinance, the only listed MFI in the country, had threatened to pull out of the state if the government did not revoke the Act.

Last year, the Assembly enacted the Act and imposed stringent regulations in response to complaints over high interest rates and coercive loan recovery practices adopted by MFIs.

“Operations have come to a standstill in the last three months. Fund-raising has become an issue and banks are yet to disburse loans,” said Uday Kumar, chairman and managing director of Share Microfinance.

Banks have not opened up funding to MFIs. In a meeting with bank chiefs on December 22, the Reserve Bank of India (RBI) had asked them to disburse loans to the sector.

Kumar added that private equity players were not interested in the sector since their profit margins were likely to decline.

The Malegam committee set up by RBI has suggested the central bank be the single regulator for MFIs. The committee said if its recommendations were accepted, a separate Act would not be required.

Andhra Pradesh accounts for 25 per cent of the MFI business. While the overall size of the industry is Rs 35,000 crore, MFIs lend Rs 8,000-9,000 crore in Andhra only.

“We are expanding in new markets. Our exposure to Andhra will definitely fall due to some provisions recommended by the state which are not suitable for the industry,” said a senior executive at Spandana Spoorthy.

Last month, the company disbursed Rs 2,76,000 in the Nellore district of the state. The executive added the company would take a call on pulling out completely after RBI accepts the recommendations in March.