A year after it was made a law, the Andhra Pradesh Microfinance (Regulation of Money-Lending) Act has only spelt doom for the microfinance institutions (MFIs) of the state, but the government appears unmoved when it comes to helping the parties in the recovery of credit faults.
“We are neither responsible nor obligated to do so,” Reddy Subrahmaniam, principal secretary of the department of rural development, who scripted the legislation and presided over the subsequent regulation of MFI operations in the state. This, when the pack of the ‘victims’ includes even SKS, the leader. Ironically AP was the springboard for many to make their pan-Indian presence in later years. However, with no sight of recovery, let alone gaining new business, of their Ra 7,000-odd loan outstanding in the state, MFIs led by SKS had to write off most of their loan portfolio.
Earlier, the MFIs Network maintained that the repayment went down from what was 98-99 per cent to 10 to two per cent, courtesy the state’s intervention in MFI operations. Its CEO Alok Prasad noted this necessitated the government’s role. For, “about Ra 5,000 crore that was locked up in AP is public money that lent to MFIs by banks,” he had told Business Standard.
Even so, Subrahmaniam, a senior IAS officer, says he has “no comments to offer” on the latest developments in SKS. “It is purely an internal matter of the company. We only worked within our limited mandate of protecting the poor borrowers in the state. We are completely neutral when it comes to MFIs’ business decisions.”
As for SKS founder Vikram Akula’s previous observation that the company has been the victim of external political attacks, he said it was the people who were being victimised at the hands of MFIs; not vice versa. That said, the senior IAS officer doubts if MFIs have learned a lesson.
“In other parts of the country, they implement the same business model, which we rejected here. The model they still follow is this: lend the borrower irrespective of how he uses the loan. Recover the credit irrespective of whether the borrower is in a position to repay the debt.”
Then why is it that they had to face adversity only in AP? Is it because the poor in AP are more politically empowered to influence government decisions even when there were no elections on the horizon? Subrahmaniam pleads to disagree.
“Had that been the case, the MFIs would not have been able to continue with the same kind of operations in Tamil Nadu. There the levels of political consciousness among the people of that state is much higher. Our government wants to stand by its people in their darkest hours of misery marked by a spate of suicides by borrowers who were caught in a debt trap.”
On MFIs having been seeking government help in recovering their loan outstandings, he has a counter-question. “How are we responsible for these credit defaults, that too when they never bothered to seek the government’s views at the time of credit disbursements? It makes sense only if they asked for our help in recovery of those loans that were given with government’s clearance post the MFI legislation.” With regard to previous loans they are free to pursue legal means to recover the debt, he adds.
As for the sudden fall in recovery, the top bureaucrat says it the trust or lack of it between the lender and borrower that matters the most in these transactions. “For example, Stree Nidhi bank (cooperative credit society formed with women SHGs) that we launched last month is already registering 100 per cent repayment in cases of instalments.” So, what procedures did Stree Nidhi follow to register 100 per cent recovery? Of the Ra 5.06 crore loans so far disbursed, Ra 1.5 crore was given for agriculture operations, Ra 1.35 crore to dairy operations, Ra 1.5 crore to other income generating activities, points out Subrahmaniam.
“While Ra 23 lakh was given for education, the remaining Ra 53 lakh was given for emergency needs. You can see from these numbers that the major thrust is given on income generation. Upfront we ranked the Mandal Samakhyas and accordingly determined the credit limit of each of these units (the nodal agencies responsible for micro loan sanction and disbursement).”
Further, credit off take is low because the government does not want to push the demand. “Secondly, credit operations had not started in the Telangana region on account of political agitations,” he notes, adding, “we are still hopeful of achieving Ra 1,000 crore credit target during the current financial year.”