“Till recently, I never had money to pay back my loans from banks. But now, my repayment to banks is up-to-date as I am not paying anything to microfinance institutions.”
This statement from Ms Vijayyamma, leader of a self-help group (SHG) in Warangal, explains how banks are gaining from the MFI crisis in Andhra Pradesh.
“The repayments by SHG members to banks are now 97 per cent,” Ms Sunitha Laxma Reddy, Minister for Women and SHGs, Government of Andhra Pradesh, told
Interestingly, before the AP Microfinance Regulation Act came into force in October 2010, MFIs claimed 97 per cent recovery rate from the same SHG members who were also their clients.
At the same time, banks were complaining of mounting dues from SHGs. Mr R. Ramanchandran, President of SLBC and CMD of Andhra Bank, said five months ago that the over-dues of SHGs were “mounting and the recovery of these loans is a major concern for the banks.''
IMPROVEMENT
But now, the situation has changed. “The SHG loan portfolio is now a business proposition for banks,” SLBC said in its annual credit plan for 2011-12.
Increase in savings by SHG members was observed, indicating the positive impact of the increased thrust on the lending, it added.
Stating that the recovery of dues was “good” now, banks were even planning to ape some of the operating models of MFIs.
“The delivery model of MFIs is their strength and steps are being taken by banks for revising their strategy,” the SLBC said.
The SHG lending target was also increased to Rs 10,684 crore in FY12 as against Rs 8,574 crore financed during the previous year.
When contacted, an Executive Director of a public sector bank said that due to the almost complete halt of fresh loan disbursals and loan repayments since the last eight months, the savings and disposable income of SHGs had gone up.
“This is resulting in better repayments to banks,” he added.