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From a 98 per cent repayment rate barely six months ago to over six lakh Self Help Group (SHG) members defaulting on their loans, is the saga of microfinance in Andhra Pradesh. For Savithri, an SHG member from Bhongir in Nalgonda district of Andhra Pradesh, the reason for defaulting is simple: “I am unable to pay existing loans as I've not got any new loan in the last six months.''
This collective default adds up to a whopping Rs 7,000 crore.Savithri, who runs a grocery shop, has taken loans from two MFIs, and defaulted on both. However, her shop continues to run. She is just one among the over six lakh SHG members who have stopped repayment to MFIs since October 2010 after the enactment of the AP Microfinance Regulation Act.
“The absence of fresh loans is impacting our income generation activities and repaying capacity,'' says Laxmamma from Tandur in Ranga Reddy district. The findings of the Reserve Bank of India's Malegam Panel support these women's claim. In its report, the panel observed that only 25.4 per cent of every new loan was spent on income generation, while 20.4 per cent was used for repaying old loans.
RESCHEDULING
Faced with huge outstanding loans, MFIs are now rescheduling loans to clients, following a recent meeting of the RBI with MFIs. The loans given to MFIs will be restructured by banks under the corporate debt restructuring (CDR), but only after MFIs restructure their loans to borrowers. The RBI has extended the earlier deadline of March 2011, to June 6, 2011, for restructuring of bank loans to MFIs under the CDR mechanism.
“In a way, the clients themselves have done the restructuring by not paying the instalments. However, we will be definitely restructuring on the books,'' Ms Padmaja Reddy, Managing Director, Spandana Spoorthy, told Business Line . With norms for restructured loans being simpler and less harsh compared with NPAs, this should help both MFIs and their borrowers.
Spandana has Rs 1,500-crore outstanding loan portfolio in AP out of its total loans of Rs 3,700 crore in the country. SKS Microfinance has outstanding loans of Rs 1,250 crore from its borrowers in AP.
The country's only listed MFI, SKS Microfinance, is willing to reschedule existing loans provided the “harsh provision against multiple loans” is removed. “We have also told the government that rescheduling of client loans can be done if we can extend fresh loans without hassles,'' says Mr M R Rao, CEO, SKS Microfinance.
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