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Microfinance institutions (MFIs) may have to write-off most of the Rs 7,000 crore outstanding loans in Andhra Pradesh due to poor repayment during the last nine months.
“The loan recoveries are only about 10 per cent in some places. If this is not addressed, they may have to be written off,” Ms Padmaja Reddy, Managing Director, Spandana Spoorthy MFI, told Business Line here. Banks should help MFIs in reducing the burden of non-performing assets (NPAs) by converting their loans into equity, she added.
Andhra Pradesh accounted for 30 per cent of the total MFI portfolio (Rs 33,000 crore) in the country as of October 2010 when the State Government brought in a regulation for MFIs.
“Most of the MFIs had a huge portion of their total portfolio in the State. They cannot continue in business if at least 50 per cent of dues are not recovered,” Mr P. Kishore Kumar, Chief Executive Officer, Trident Microfin, said.
The head of a Hyderabad-based MFI said there was lot of “pressure” from institutional investors to work on a recovery mechanism. “But we are helpless as the atmosphere in many villages is still unfriendly to our staff,” he said.
Things are not “good” for the country's only listed MFI, SKS Microfinance, either. Though it is tight-lipped on the exact nature of recoveries, the company had indicated that the AP situation could affect it for some more quarters. It now has about Rs 1,000 core outstanding loans from the State.
Many are pinning hopes on the proposed MFI Regulation and Development Bill, 2011 of the Central Government.
“If this translates into law at the earliest, things may improve with normalisation of disbursals,” Mr Kishore Kumar said.
According to Mr Alok Prasad, CEO, Microfinance Intuitions Network (MFIN), the AP Government should create a conducive atmosphere for recovery of old loans.
But the Government sees no role for itself. “It is primarily a matter between the MFIs and their borrowers. We only chip in if there is unlawful coercion,” Mr Reddy Subrahmanyam, Principal Secretary, Department of Rural Development, Andhra Pradesh Government, said.
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