Money & Banking

MFI clients in AP moot formula to repay Rs 10,000-cr loans

| | Updated on: Apr 27, 2011
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Say they do not wish to evade dues

The clients of microfinance institutions (MFIs) in Andhra Pradesh are “willing” to repay existing loans aggregating to about Rs 10,000 crore.

“The self-help groups in various districts have expressed their willingness to repay the loans subject to certain conditions. The district-level resolutions passed to this effect have been communicated to major MFIs operating in the State,” Mr Reddy Subrahamanyam, Principal Secretary, Department of Rural Development, told Business Line .

The lead in this regard was taken by members of self-help groups (SHGs) in Karimnagar district. They had passed a resolution to repay the loans subject to fulfilment of four prerequisites by MFIs.

The amount paid by each individual client should be added to the principal outstanding as MFIs charged over 40 per cent interest before October 2010.

On the remaining dues, only 12 per cent interest will be paid.

Each member should be given a fresh figure on her dues after taking into account the aforementioned conditions.

Further repayment will be done only on a monthly-basis and not every week as was the practice earlier.

“After the Karimnagar resolution, I understand that SHGs in all other districts too have adopted a similar approach and communicated the same to MFIs and there may be a response soon,” Mr Subrahmnayam said.

The move is expected to provide some relief to major MFIs as they had huge outstanding loans. The repayment of old loans and disbursals of fresh loans have almost come to a halt in AP — the largest MFI market in the country — since October 2010 after a law to regulate MFIs' activities was put in place.

When contacted, Ms Padmaja Reddy, Managing Director, Spandana MFI, said: “The initiative is welcome as it talks of repayment. Getting existing dues with 12 per cent interest on principal outstanding is better than losing them totally.”

While MFIs will not be able to extend fresh loans at 12 per cent interest due to the high cost of funds, collecting existing loans at this rate should not be a problem, she said.

“But the crucial point here is enforceability of these commitments as everybody should be willing to repay,” she added.

The country's only listed MFI, SKS Micro, may not agree to face any ‘loss' with reduced interest rate.

The company's CEO, Mr M. R. Rao, had earlier said restructuring of existing loans could be done only if fresh loan disbursals are made “hassle-free”.

Published on April 27, 2011

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