With microsfinance institutions straitjacketed, many borrowers in Andhra Pradesh are going back to moneylenders.
“After severe restrictions were imposed by the Andhra Pradesh Government on microfinance lending and loan recovery in late 2010, there is now enough evidence of the poor approaching moneylenders, according to Mr Alok Prasad, CEO, Microfinance Institution Network (MFIN).
Overall, the microfinance industry has shrunk because lending activity in Andhra Pradesh, which accounts for much of the total industry, has almost come to a standstill.
Overall, the loan portfolio of MFIs has come down to about Rs 19,000 crore, from Rs 30,000 crore in March 2011. “The microfinance industry was providing Rs 7,500 crore of formal sector credit to the rural economy in the State. That became zero after the Andhra Pradesh crisis,” Mr Prasad said.
The State government tried to pump in money through self-help groups to meet the shortfall. “However, it was able to inject only about Rs 2,500 crore. This created a shortfall of about Rs 5,000 crore,” Mr Prasad said.
The poor have now started exploring other channels of credit, especially moneylenders, who charge usurious rates of interest, sometimes as high as 10 per cent a month. “The State Government has done long-term damage to the poor,” Mr Prasad said.
Today, microfinance institutions are approaching credit information bureaus — High Mark and Equifax — for client information to be able to take correct credit decisions.
These bureaus provide information such as credit history of the client, loan amount outstanding, customer identification, among other things. If borrowers do not repay their loans, it is reflected in their credit history. If such borrowers approach other lenders, they will be denied loans, Mr Prasad said.
All MFIN members take a loan decision only after looking at the credit information bureau report. There are 47 members in MFIN, accounting for 90 per cent of the total microfinance universe, excluding self-help groups, he said.