Money & Banking

Microfinance cos may retrench staff to cut costs

G. Naga Sridhar Hyderabad | Updated on November 09, 2017 Published on January 05, 2011

Mr Alok Prasad, CEO, Micro Finance Institutions Network

Thousands of rural youth employed as field staff for Micro Finance Institutions (MFIs) may be in for troubled times as major MFIs are cutting costs, thanks to recent developments in Andhra Pradesh, the hub of MFIs.

Most of the top ten MFIs in the country are now either considering retrenchment of field staff or have stopped fresh recruitment, according to industry sources.

The reason behind this is the about 95 per cent drop in business operations in Andhra Pradesh after it promulgated the AP Microfinance Institutions Regulation ordinance on October 15, 2010, which became law a couple of days ago.

The MFI industry has been one of the largest employers of rural, semi-educated youth who work as field staff to disburse/collect loans and conduct centre meetings.

The country's only listed MFI, SKS Microfinance Ltd alone, employs over 26,500 staff on its rolls.

According to Micro Finance Institutions Network (MFIN) data, the industry employs about one lakh youth. “The major MFIs have over 10,000 branches, which have a field staff of 60,000-75,000,” Mr Alok Prasad, Chief Executive Officer of MFIN, told Business Line.

If other MFIs are also included, the number would go beyond one lakh, he added. Out of this, 35-40 per cent are employed in Andhra Pradesh.

The MFIN had information that MFIs were planning to reduce number of branches and retrench staff, he added.

“On an average, a rural youth earns Rs 10,000 per month in his own locality. His livelihood may be under threat now,” he said.

Mr Udaia Kumar, CEO of Share Microfin, which has 10,000 staff, agrees. “It is not only a question of job loss, there is trouble everywhere, including difficulty in meeting working capital needs,” he added.

While companies are tight-lipped about retrenchment plans, leading MFIs, including Spandana, Basix and Share, are seriously considering scaling down operational costs.

When contacted, a spokesperson of SKS said: “We have stopped fresh recruitment in AP but are not laying off staff.”

The new law in AP mandates MFIs to adopt monthly re-collection of loans only in Panchayat offices and prior approval of Government in case of sanctioning loans to those who had already availed a loan, among others.

Since October 2010, MFI operations in AP have virtually come to a standstill as the staff of these institutions are not being allowed to enter the villages.

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Published on January 05, 2011
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