MFIs face fund crunch in K'taka

Micro finance institutions are facing fund crunch in Karnataka in the aftermath of regulatory restrictions imposed by Andhra Pradesh government as commercial banks are shying away from loan disbursement.

State based banks are waiting for Malegam committee report to bring clarity to the issue of bank funding to the MFI institutions before loan disbursement. “Fund flow from banking sector in last two months have been dried up as banks are skeptical of lending to MFIs due to recent regulatory restrictions imposed by neighboring Andhra Pradesh government,” Manjunath LH, executive director of Sri Kshetra Dharmasthala Rural Development Project (SKDRDP) said here on the sidelines of a FKCCI seminar on MFIs.

While larger MFIs with significant customer base are not affected much due to such restriction, small MFIs are facing lot of problem due to halting of loan disbursement, he added.

Recently, Andhra Pradesh government has put restriction on MFIs with respect to recovery with out capping interest rate charged by them to customers.

However, the decision has seen recovery rate plunging to 15 per cent from around 95 per cent earlier, making it unsustainable for the industry.

“Banks in Karnataka are skeptical to lend to this sector as they are of the opinion that Andhra Pradesh like situation may happen in the state. They need clarity on the issue of lending to this sector,” Manjunath said.

Reserve Bank of India has recently set up Malegam Committee to look into various aspects of micro-finance industry. The committee is expected to come with its report soon. Referring to reduction in interest rates, he said that there was no reduction in interest rate in the recent time.

“MFIs in the state are charging interest rates ranging from 15 per cent to 32 per cent and there is no reduction in interest rate in the recent time,” Manjunath added. However, bankers have a different opinion about this matter. “Banks have not stopped lending to MFIs in the recent time and the fund flow is sound,” G Ramanathan, general manager of Syndicate Bank and convener of State Level Bankers Committee said.

He also said that the banks were not asking for higher collaterals for lending to MFI sector.