Micro-lenders look beyond Andhra for survival

Micro-lenders claim that these new rules have turned their businesses unviable and encouraged borrowers from not repaying money

With the impasse continuing in Andhra Pradesh's microfinance sector, crisis-hit micro-lenders are expanding their businesses outside the state to survive.

Consider this: Future Financial Services, a microfinance company based in Andhra Pradesh’s Chittoor district, had to approach banks for debt-restructuring after the state government introduced a new ordinance in October 2010 curbing micro-lending operations of private players.

The micro-lender, aided by the growth in its business in Tamil Nadu and Karnataka, has now been able to opt out of the corporate debt-restructuring programme. “We do not have any business in Andhra Pradesh now. We are writing off that portfolio from our books. We have strengthened our presence in Tamil Nadu and Karnataka, where the repayment rate is between 99.5 and 99.8 per cent,” G Dasaratha Reddy, managing director of Future Financial Services, told Business Standard.

The microfinance company has now opened its first corporate centre in Bangalore and is also exploring options to enter states such as Maharashtra and Goa in the next financial year. It aims to increase its loan portfolio to Rs 250-300 crore in Karnataka and Tamil Nadu by March 2014.

Trident Microfin, a Hyderabad-based microfinance institution that has also restructured its bank loans, has started scaling up its business in Maharashtra and Madhya Pradesh. “Our loan portfolio in these two states has almost doubled since the crisis and is around Rs 18 crore now,” said Kishore Kumar Puli, chief executive officer of Trident Microfin.

He added the company plans to set up operations in Chhattisgarh if it is able to secure fresh funding from banks.

According to industry analysts, the loan recovery rate in Andhra Pradesh for microfinance companies continues to be in a low single-digit and fresh lending has hardly happened since the new ordinance.

The state government had mandated that private microfinance companies obtain a no-objection certificate from it before offering fresh loans to poor borrowers. It also banned these companies from recovering money on a weekly basis, following allegations that micro-lenders charged exorbitant rates of interest and used coercive methods for loan recovery.

Micro-lenders claim these new rules have turned their businesses unviable and encouraged borrowers from not repaying the money. “At the ground level, nothing has changed. The current situation is as bad as October 2010 (when the crisis started). If it continues, we will have no option but shift our base to another state,” said the CEO of a microfinance company, requesting anonymity.

Hyderabad-based SKS Microfinance, the only listed micro-lender in the country, had announced in 2012 that it would move its headquarters to Mumbai, owing to the hostile business environment in Andhra Pradesh.