8 m Andhra borrowers ineligible for MFI loans

Written by Pranav Nambiar | Mumbai | Updated: Aug 4 2012, 05:52am hrs
Around eight million small borrowers in Andhra Pradesh (AP) have become ineligible for loans from the major micro-finance institutions (MFIs) of the country. This follows the assessment of two credit bureaus Equifax and High Mark that began recording the credit history of all MFI clients in the country since March this year. The bureaus have classified eight million borrowers as defaulters. Over 70 million loan records covering about 32 million clients from across the country have been uploaded by MFIs with these bureaus so far.

Alok Prasad, CEO of industry body Micro Finance Institutions Network (MFIN), said the credit record of these borrowers in Andhra Pradesh (AP) has turned negative on account of the repayments coming to a halt. This was post the promulgation of the AP Ordinance of October 2010, regulating the activities of MFIs in that state.

Prasad added that since June 2012, MFIN members constituting over 90 % of the microfinance industry have been using bureau reports for all their lending decisions.

AP constituted around 30% of the micro-lending industry before AP MFI Ordinance, which is now an Act, was put in place by the state government. This was done under the pretext of clamping down on microlenders after a spate of borrower suicides due to alleged strong arm tactics of MFIs.

MFIs on their part say that that this move was politically motivated and is benefiting traditional moneylenders who charge small borrowers unfair loan terms. The repayment rate of MFI loans in AP dropped to about 10% now from 95% before the ordinance was passed. MFIs in AP wrote off about R1,779 crore worth of loans in the financial year 2011-12.

Several MFIs including leading players like SKS Microfinance and Basix Microfinance have scaled down their operations in AP by closing branches and reducing their employee base. During financial year 2011-12 the number of MFI branches in the country declined from 11,276 to 9,843, largely due the troubles in AP. The gross loan portfolio of MFIs fell by 15% to R15,433 crore.

Prasad said that the use of credit bureaus is the natural outcome of the drive towards responsible lending and compliance with RBIs regulations and the industry code of conduct. According to RBI regulations the total indebtedness of the borrower cannot exceed R50,000, and borrowers cannot take loans from more than two MFIs at a time.

MFIN was earlier also in talks with the credit information bureau of India limited (CIBIL) to work as a credit bureau for the MFI sector, but that did not materialise. MFIN is currently in talks with another company Experian to offer credit bureau services to the industry.

Historically MFIs were largely concentrated in the southern and central states of AP, Tamil Nadu. Maharashtra and Madhya Pradesh.

In recent years MFIs have expanded their presence to about 27 states. MFIs outside AP showed growth both in gross loan portfolio and disbursements in 2011-12.