Andhra mum, MFIs glum

Net worth of companies in danger as the state government is yet to respond to proposals made for revival of the industry

The future of micro lenders in Andhra Pradesh looked bleak if the state government did not act fast, said Microfinance Institutions Network (MFIN) Chief Executive Officer Alok Prasad.

The net worth of Andhra Pradesh microfinance institutions (MFIs) would be negative by the end of the financial year if the government continued to maintain silence over the proposals made for the revival of the industry, Prasad told mediapersons here on Tuesday. MFIN and Small Industries Development Bank of India (Sidbi) had suggested measures to resolve the crisis, Prasad said, but the state had not responded.

MFIs in Andhra Pradesh plunged into a crisis following the state passing a legislation regulating their activities in 2010.

REVIVAL ROADMAP

• 12% is the interest margin that Microfinance Institutions Network (MFIN) are looking at 
• MFIN wants the Reserve Bank India to restore the interest margin between MFI borrowings and lending.  
• Margin is the difference between the interest rate at which an MFI borrows and the rate of interest at which it lends 
• 10% and 12% is margin cap for MFIs with a credit portfolio of less than Rs 100 crore and more than the above amount, respectively. RBI fixed this via a circular dated August 3 
• Rs 100 crore will be the credit portfolio of less than 12 MFIs out of the 47 members in MFIN, according to Trident Microfin MD Kishore Kumar Puli

The proposals made by MFIN include restructuring of loans, involving reduction in interest rates, writing off accumulated interest of about Rs 1,800 crore and extending the term of the loans up to four years.

Prasad said Sidbi had also made a similar proposal to the state government, which “informally” said it was a good package. But no other response has come. “It is like a deafening silence.”

The activities of the microfinance industry have come to a standstill in the state. Credit disbursals, which were Rs 7,000 crore before the crisis, are “zero” today. “Now, there is significant evidence that, because of cessation of activity by MFIs, the poor are approaching moneylenders. I don’t think anybody will argue this is a good thing,” Prasad said.

In this context, he emphasised the need for the stakeholders to sit together and work out a solution. “We have to break the logjam.”

With this view, MFIN and the Centre for Economic Social Studies held a colloquium on microfinance here today. Speaking at the conference, former member of the Planning Commission and the National Advisory Council, C H Hanumantha Rao, said “we should try to understand where we have gone wrong” in the case of microfinance. National Statistical Commission Chairman R Radhakrishna said credit should lead to improvement in productivity. “Let us look at how to re-engineer MFIs,” he added.