After being in the dock for charging unreasonably ‘high' rates of interest, microfinance institutions (MFIs) are now facing another major problem.

They are ‘defaulting' on payment of life insurance claims to some of their members.

A good number of MFIs' clients in many places across Andhra Pradesh — the largest MFI market in the country — are now alleging that MFIs were not paying death claims for the last six months citing various reasons.

MFI operations in AP had almost come to a halt since October 2010 after the State Government had brought out a legislation to regulate MFIs' activities.

“There has been increasing complaints about death claims not being processed/paid by various MFIs in the last six months,” a senior government official told Business Line .

“My husband is a rickshaw-puller who died in an accident three months ago. Still, I have not got any insurance claim payment,” Savithri, a stone-cutter and member of SKS Microfinance in Bhongir of Nalgonda District of AP said.

There are many other members of other MFIs such as Share Microfin with similar complaints.

All MFI clients were made to buy Rs 10,000 life cover by their respective MFIs who partner with various life insurance companies.

When contacted, Mr M. R. Rao, CEO of SKS Micro, which handles insurance matters of its 72 lakh clients, including 18 lakh in AP, said there were 6,537 deaths among its clientele in AP during October 2010 to February 2011.

“Of this, 5,455 claims were approved and 3,102 have been paid. We don't have exact data from our field staff on whether the remaining 2,253 claims are paid.”

Non-availability of nominees was one of the reasons for non-payment of claims, he added.

SKS Micro, which has Bajaj Allianz Life, LIC, and so on, as insurance partners, is also facing an enquiry by the Insurance Regulatory and Development Authority for “irregularities” in handling of clients' insurance.

Mr P. Ravi Kutumbrao, Senior Vice-President-Operations, Bajaj Allianz Life Insurance, said policies availed of by most of the MFI clientele (including those of SKS) were group policies wherein the MFI would act as the Master Policy Holder (MPH).

“As of now, we have not received any complaints from the MPH clientele (including SKS) on non-receipt of amount under admissible/admitted claims. In the event of any complaint, appropriate steps shall be initiated,” he said.