MFIs rethink IPO plans in view of upheavals in the sector

Worried over recent upheavals in the microfinance sector on account of high interest rates small lenders charge and their strong-arm loan recovery tactics, many players have put on hold their plans to raise funds through the capital market.

Hyderabad-based Share Microfin, which was planning to hit the Dalal Street by fiscal end, has put on hold its initial public offering (IPO) and is consulting investment bankers on the issue, a source close to the planning of issue told PTI.

Spandana Spoorthy, another Hyderabad-based microfinance institution, too was expecting to come out with a public offer by April but now, reportedly, wants to change the time table.
    
Spandana, ranked as world's sixth and the country's second largest MFI in terms of reach, has been looking at various options to raise capital.
    
However, neither company could be reached for comment.
    
After a Rs 1,600 crore successful IPO by the Vikram Akula founded SKS Microfinance, some other microfinance firms were mulling to hit the capital market.
    
Recently, microfinance institutions (MFIs) in the country have came under attack from various quarters for charging very high interest rates on loans and for their strong arm tactics for recovering money.
    
"Whenever, there are some negative concerns about an sector, industry majors want to play safe," Delhi-based SMC Global Securities Strategist Jagannadham Thunuguntla said.
    
The Andhra Pradesh government has issued an ordinance to rein in MFIs, whose alleged coercive tactics have recently led to a number of people committing suicides.
    
Christened 'Andhra Pradesh MicroFinance Institutions (regulation of money lending) Ordinance, 2010', the Ordinance came into force on Friday with the Governor E S L Narasimhan giving assent to it.
    
The Reserve Bank has also formed a sub-committee to look into the functioning of MFIs.
    
Last month, the Finance Ministry had asked public sector banks to ensure that these institutions do not charge a loan rate above 24 per cent.
    
Since MFIs take loans from banks and lend to their clients at a hefty interest rate of as much as 36 per cent, the government is now insisting that public sector lenders must ask MFIs to cap their lending rates in the range of 20-24 per cent as a precondition to access bank finance.