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Microfinance institutions operating in Andhra Pradesh have stopped making fresh loans due to their mounting non-performing assets, given the limited scope of recovery a year after the state government promulgated an ordinance regulating their activities.
According to state government data, the total loan outstanding of all MFIs stood at Rs 10,386 crore before the Act and as per the latest figures, their loan outstanding now stood at Rs 6,381 crore.
The AP Microfinance Ordinance was implemented on October 15 last year and subsequently made into an Act in the wake of a spate of suicides by borrowers, allegedly due to the coercive recovery practices employed by MFI agents.
Rural Development Principal Secretary Mr Reddy Subramaniam said the state government has achieved its objective of saving people from harassment by MFIs.
While Spandana Sphoorty Financial tops the list of MFIs with outstanding bad loans, with NPAs worth Rs 1,500 crore, SKS Microfinance, the country’s only listed MFI, has Rs 1,135 crore worth of defunct assets in the state.
“The state government’s objective is to save people from the clutches of MFIs who use coercive methods for recoveries. As far as their outstanding is considered, they came up with a proposal that the interest rate will be reduced, which is a welcome move,” Mr Subramaniam told PTI.
He said the MFIs’ proposal will be referred to the State-Level Bankers Committee soon. Mr Subramaniam, however, said the government has no role to play in the MFI loan recovery mechanism.
“There was an external political attack on microfinance that culminated into the draconian provisions of a microfinance law passed in Andhra Pradesh, the Andhra Pradesh MFI Act. The Act has resulted in a slight reduction, up to 5 per cent, in the company’s growth,” SKS Microfinance Executive Chairman Mr Vikram Akula remarked in the company’s annual report. The MFI Act mandates prior approval of every loan application by the state government authorities.
Fresh disbursals in the state have come to a standstill due to the stringent norms set by the state government. While the MFIs have proposed 73,592 new loans to borrowers, the government has rejected as many as 71,309 applications, citing non-compliance of the MFI Act.
A senior state government official said most of the applications for fresh loans were rejected as they come under the category of multiple lending.
AP accounted for almost 30 per cent of microfinance lending in the country before the new Microfinance Act was implemented in the state. Now, without a visible solution for recoveries, there has been no fresh lending, a senior executive of an MFI said.
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