Green shoots for MFIs in Andhra as borrowers seek to clear dues

Almost five years after the crisis in the microfinance (MFI) sector in Andhra Pradesh, a number of microloan defaulters are voluntarily repaying  their debts. MFIs have been almost defunct in the state after the state government restricted their operations through an ordinance. In the process, close to Rs 6,000 crore of bad loans had accrued in the state, as MFIs were unable to go for fresh recovery.

However, the defaulting borrowers have been unable to access any other formal source of finance due to their weak credit history. Consequently, a number of them are voluntarily paying off their debts, so that they can get fresh loans from the organised credit market.

“Slowly the recovery is taking place. Of the Rs 1,000-crore outstanding, a small fraction of that money could be recovered as the borrowers themselves decided to pay off debt.  In the last three months, we could recover around Rs 40 crore through voluntarily repayments,” said a spokesperson of Andhra-Pradesh-based MFI, Share.

“A very small amount of recovery has been happening in Andhra Pradesh through voluntary means,” said Ratna Vishwanathan, CEO, MFIN (Microfinance Institution Network), the representative body of MFIs.

Notably, the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Ordinance of 2010 mandated that MFIs to lend only after getting no-objection certificate from the state government. The state government had also put restriction on fresh recovery of loans. In 2013, the Supreme Court order allowed one of the biggest micro-financier, SKS to resume micro-lending operations, provided loans are repaid on a weekly basis, rather than the monthly basis and interest payable on a loan did not exceed its principal. The court also allowed the MFI recover its dues, provided it did not use any coercive methods of recovery.

Soon after the SKS order, the MFIN, also moved the SC for starting micro-lending operations in the state. The court is yet to come out with an order on the same.

Also, last year, three Andhra Pradesh-based MFIs were able to get two years' additional time from the Reserve Bank of India (RBI) for meeting regulatory capital requirements for qualifying as non-banking finance company (NBFC)-MFIs. This apart, with approval from the corporate debt restructuring (CDR) cell, the existing lenders to the three MFI had agreed to provide them an additional fund of close to Rs 1,780 crore.

Before the crisis in the MFI sector,  SKS, Spandana, Share and Asmitha together constituted more than 60 per cent of business of microfinance.