With MFIs out, SHG-bank bond grows stronger in AP

Bank credit given to SHGs was higher by more than Rs 3,000 cr compared with the target

The micro lending scenario in Andhra Pradesh is turning favourable to the self-help group (SHG)-bank linkage model while the private microfinance companies, bitten by the AP MFI regulation, continue to remain on the sidelines.

In an indication to this, loans given to women SHGs under the bank linkage touched Rs 13,000 crore in the financial year ending March, 2013, far exceeding the expectations, said B Rajsekher, chief executive officer of the Society for Elimination of Rural Poverty (Serp).

Half of the funds earmarked for the SHG-bank linkage programme in the country usually flows into AP. However, bank credit given to SHGs this time was higher by more than Rs 3,000 crore compared with the target, according to the IAS official.

Added to this, Stree Nidhi, a women's credit cooperative society created in the later part of 2011 as an answer to private MFIs, had lent over Rs 900 crore to SHGs in the same period. Both Serp and Stree Nidhi are government-led initiatives aimed at empowering the women SHG movement, which has around 10 million members.

The reason for the shift in favour of SHG-bank linkage has been attributed to the cash credit limit facility. The facility, which was earlier available only to the businesses, is now being extended to women groups by the banks.

In the earlier term-loan mode, SHGs were not eligible to approach bank for a fresh loan until they cleared the old loan. Therefore, during the repayment period these women groups used to look for alternative sources of finance whenever they needed money, a need that was greatly captured by the MFIs till 2010.

Under the cash credit limit facility, the women members can get loans from banks up to the sanctioned limit any number of times while paying the interest. "All the banks, except State Bank of India (SBI), are offering cash credit limit facility to SHGs. Banks have made a gradual shift to this in 2012," Rajsekher told Business Standard.

Maybe this also explains why the private MFIs are finding it difficult to relaunch their operations in the state though they know that any hope, even if remote, of recovering close to Rs 7,000 crore NPAs is possible only if they start lending again.

It may be recalled that the top executives of SKS, the only listed microfinance company in the country, had earlier said they would resume operations in the light of the Supreme Court directive. However, so far no activity, either in the form of granting fresh loans or recovery of old loans, has been reported from any private micro lenders, including SKS, according to official information. Efforts to get a comment from a senior company official in this regard failed to elicit any response.

In March this year, the Supreme Court, in response to a special leave petition filed by SKS, said the interim orders issued in 2010 by the AP high court shall continue pending further orders.

In the said interim orders the AP high court maintained that the companies could continue their operations provided they comply with the rules framed under the AP MFI (Money Lending) Act with a change in time frame for the periodic filing of returns. "We make it clear that in case the petitioner strictly complies with the said orders, no coercive steps be taken against it," said the Supreme Court orders.

According to a government report, only L&T Finance Limited has renewed its registration to conduct operations till October 2013. However, an official said SKS and a few other microfinance companies had also recently renewed their registrations with the respective district authorities as required by the state MFI legislation.

When contacted, Reddy Subrahmanyam, principal secretary, department of rural development, said the companies were always allowed to conduct their operations in compliance with the provisions of the Act. "But they need to inform the government whom they are going to give a loan and for what purpose," he said.

Multiple lending, which was considered as a leading cause triggering a spate of suicides on the back of the alleged coercive recovery practices by the field staff of MFIs, is prohibited under the AP MFI Act. Therefore, private micro lenders cannot approach most of the women members of SHGs for fresh loans as long as the Act is in force.

SKS and other companies had challenged the state legislation in the high court, which turned down their request leading to their seeking intervention of the Supreme Court.

In the third quarter of the 2012-13, AP accounted for 22 per cent of the gross loan portfolio held by all the microfinance companies that are the members of the industry body Micro Finance Institutions Network (MFIN). All of it though had turned NPA.