On Day 1, MFIs struggle to make recoveries

Almost two weeks after the Andhra Pradesh government issued an ordinance to rein in erring microfinance institutions (MFIs) operating in the state, they are slowly getting back into business.

MFIs had stopped recovery after the state government issued the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Ordinance, 2010, on October 15. The ordinance insists on MFIs getting registered with district rural development agencies, apart from imposing a three-year imprisonment and/or Rs 1,00,000 fine on MFIs that harass borrowers.

Following a petition filed by the Microfinance Institutions Network (MFIN), an industry body with 44 members, that challenged the ordinance, the Andhra Pradesh High Court allowed MFIs to carry on with their activities. The court asked the state not to arrest the staff and management personnel of MFIs till further orders, but said the government can book cases, if they violate Rule 9 (relating to interest rates charged) and Rule 16 (use of coercive methods for recovery) of the ordinance.

However, MFIs are not sure whether the recoveries would be similar to the pre-ordinance days. They see the clause that says recovery should happen only at the gram panchayat office or in a public place, as a major challenge.

According to Alok Prasad, chief executive officer of MFIN, it would take about three or four days to gauge the borrowers’ mood and the pattern they would follow to repay. “It is difficult to tell how the recovery would be in the days to come.”

MFIN is working with a multi-lingual call centre for grievance redressal. “The call centre would be ready by Diwali,” he said.

Andhra Pradesh accounts for nearly a third of all microfinance outstanding in India — Rs 9,000-10,000 crore out of the total Rs 30,000 crore.

Padmaja Reddy, chief executive officer of Spandana Sphoorty Financial Ltd, said most borrowers were not aware of the MFI businesses resuming their operations. “There were queries from many customers on the recovery.”

Spandana has a loan outstanding of Rs 4,400 crore and 70 per cent of it is on a weekly recovery mode.

It would take another two or three months for the recoveries to pick up, but they would be far from the pre-ordinance period, according to her.

“We anticipate the recoveries to be around 90 per cent,” she said. Earlier, the recovery was 98 per cent. The quantum of recoveries will depend on the court’s final order, expected in two weeks.

“The staff have gone to the field. There is a lot of curiosity. They are also as confused as we are,” said Nitin Agarwal, vice-president of Spandana. The immediate focus was on reassurance rather than recovery, he said.

Sajeev Viswanathan, chief executive officer of Bhartiya Samruddhi Finance Ltd (BSFL), the microrfinance wing of Basix, said the company’s recovery was not affected due to the ordinance or the High Court’s interim order, as it followed a monthly model of recollections. “We will be knowing the impact of the ordinance and others in the next recovery cycle.” BSFL recovers loans in the first half of a month.

“It is still not safe for companies to send the staff out, as many people do not have information yet that MFIs are allowed to do business even as their registration is pending,” he said.

“We used to recover from the borrowers’ doorsteps. It will be a challenge for us in the present scenario where recoveries should be made at gram panchayat.”

According to Atul Takle, executive vice-president of SKS Microfinance, there were reports of political parties coming into villages and asking borrowers to ‘wait for some days for clarity on the issue’.

“Some people did not repay,” Takle said. SKS generally recollects Rs 12 crore a day, making it Rs 60 crore for a five-day week recollection.

SKS would give a grace period of one week, from earlier 50 weeks to 51 weeks, for repayment of loans, he said. When asked if SKS was not aligned with the MFIN thinking of restructuring loans to 75 weeks, Takle said: “It will depend on a case to case basis.”

Tirdent Microfinance’s Managing Director, P Kishore Kumar, said the collection today could be about 40 per cent. “The response from the people is not great,” he said, adding that the staff too were low on confidence fearing arrests by the police. “The recovery is even more difficult in urban slum than rural areas. Most people said they would not come out of their house to pay,” he said.

R Subhramanyam, the rural development principal secretary, said the government was not against the MFIs doing their business. “We only wanted the MFIs to be reasonable with interest rates charged and methods employed for recovery.”