In a bid to restore normalcy to the micro-finance sector in Andhra Pradesh, the Small Industries Development Bank of India (Sidbi) has entered into talks with the Andhra Pradesh government for rescheduling loans.
A memorandum of understanding (MoU) to this effect is expected to be signed by the state government and Sidbi in the next few days following the inability of MFIs to repay loans to the banks.
?We are working on the total loan component to be rescheduled and the details are yet to be finalised. Following this, an MoU for rescheduling of loans is expected to be signed in the next few days,?’ Reddy Subramanyam, principal secretary, rural development department of Andhra Pradesh, told FE.
Asked about the status of an one-time settlement package to the state government, he said that the state level bankers committee (SLBC) was not willing to get involved in this issue.
However, the proposed MoU will help restructure loans and stabilise the sector. At present, the credit demand in the state is R10,000 -11,000 crore, of which the self-help group (SHG) route caters to around R9,000 crore even as MFI operations have come to a standstill in the state.
The outstanding loans given by banks and Sidbi to micro-finance companies was R13,800 crore as on March 2010, according to the Malegam Committee report. Alok Prasad, CEO, Micro-finance Institutions Network (MFIN), said that MFIN had submitted to the Andhra Pradesh government in September, 2011, a composite package under which all borrowers of MFIs were offered a one-time settlement with the objective of reducing their repayment burden . This one-time settlement involved loan restructuring, interest rate reduction, and interest free extension of loan term up to 48 months.
?The total financial benefit to MF borrowers of this composite package comes to over R1,600 crore, which MFIs agreed to absorb. In turn, what they sought was normalisation of conditions on the ground so that fresh lending starts,” Alok Prasad said.
?The composite package was described as generous and pro-poor by the concerned senior official of AP government. But, since then, there has been no progress. Sidbi has, basically, adopted the MFIN package and is attempting to take it forward with the AP government. This effort of Sidbi is one more positive step taken by central government institutions . The AP government, however, is moving very slowly, even as the credit gap is widening and poor borrowers getting driven into the arms of moneylenders / other informal sector financiers,” he said. Overall, the MFI industry is receiving increasing support from banks and the situation outside AP is slowly moving towards normalcy.
As per the The Microfinance India ?State of the Sector Report 2011, the sector recorded a positive growth during the year despite the massive problems of catastrophic nature in the state of Andhra Pradesh. The SHG-Bank Linkage Programme and the Microfinance Institutions put together achieved a growth in their customer base by about 10.8%. The combined borrowing customer base increased to 93.9 million from 86.3 million in the previous year.
