The problems faced by the micro finance institutions (MFIs) in Andhra Pradesh has left bankers worried. Commercial banks have called for a meeting on Thursday to discuss the problems in the micro finance space. Bankers have decided to meet after the AP governments decision to prepare a Micro finance Act to regulate the MFIs. In the past few weeks there have been reports of rise in farmers suicide due to alleged harassment by MFIs. They are also planning to meet the Reserve Bank of India and share their concerns. According to the Nabard annual report during the year 2009-10, 581 MFIs availed of Rs3,732.33 crore of bank credit. At the end of March 31 2010 1,915 MFIs had loan outstanding of Rs5,009.09 crore.
?Banks have decided to meet on Wednesday to discuss the issues evolving in the micro finance space. Following which we would raise these issues with the Reserve Bank of India,?? said the micro finance head of a private sector bank. Banks including ICICI Bank Ltd and HDFC Bank Ltd will be a part of the meeting and SIDBI will be chairing the meet.
“Banks want to take preventive steps as they have burnt their fingers in 2006 in the Krishna district episode,?? the official added.
In March 2006 the MFIs faced collections problems in the Krishna district of AP following alleged complaints against them for charging exorbitant interest rates (up to 50 per cent) and harassing women for repayment. So much so that the alleged high-handed recovery methods are reported to have led to about 20 suicides. The state government had closed down the offices of some big MFI including Spandana and Share Microfin. Banks like ICICI Bank Ltd had to write off a size able loan amount extended to these MFIs.
MFIs charge an interest rate of 24-36% while banks give them money at 10-13%, depending on their ratings.
“The success of the SKS public offering has changed the way people look at the institutions. They are now viewed as a profit oriented institution, their functioning and lending activities are coming under scrutiny,?? said the chief executive officer of a micro finance institution. Majority of the big MFIs are based in Andhra Pradesh and after the success of the SKS public offering many are planning to hit the capital market. Share Microfin Ltd and Spandana Sphoorty Financial Ltd?want to list on the bourses. “The recent controversial exit of former SKS Microfinance MD and CEO Suresh Gurumani has also raised some corporate governance issues in the sector. Bankers could take this issue up in the meeting as well,?? said a banker.