Stocks

SKS jumps 10% on Cabinet nod to Micro Finance Bill

Satyanarayan Iyer Mumbai | Updated on November 15, 2017

Proposed legislation likely to provide critical life support to industry

SKS Microfinance's scrip gained 10.59 per cent to close at Rs 98.15 a share over the previous close. It was buoyed by Union Cabinet's approval to the Micro Finance Institutions (Development and Regulation) Bill.

SKS shares rose to Rs105.70 in early trades before paring early gains. The 30-stock Sensex lost 0.77 per cent to close at 16,292.98.

The proposed Bill, if it becomes a law, will provide critical life support that micro-lenders have been seeking. The Bill proposes to bring micro-finance institutions (MFI) under the RBI's oversight, while freeing them from the clutches of State-level legislations.

“It is a welcome step, a long overdue reform… RBI regulates banks and non-banking finance companies and it makes immense sense that the same body regulates the micro-finance industry also,” Mr Mathew Titus, Executive Director of Sa-Dhan, an Association of Community Development Finance Institutions, based in New Delhi told Business Line.

Protection & default

Coercive practices used by MFIs to recover debts led States such as Andhra Pradesh (where the maximum number of MFIs are based) to legislate new laws to protect borrowers and prohibit multiple lending. Subsequently, borrowers defaulted on loans and banks stopped lending to micro-finance institutions.

SKS' shares have taken a hammering over the past one year.

The company's shares have lost about 83 per cent of their value in the past 10 months. It is the only micro-finance institution to be listed.

On Thursday, SKS said it will shut 78 branches and cut 1,200 jobs in Andhra Pradesh. The company will also move its corporate headquarters to Mumbai.

On shares of the company gaining, Mr Titus said, this may also be because ttheir move (to Mumbai) reduces political risk.

satyanarayan.iyer@thehindu.co.in

Published on May 11, 2012

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