MFIs propose to recast bad loans

Cash-strapped micro-lenders in Andhra Pradesh are considering recasting distressed loans by almost halving interest to 15 per cent, with a view to improve abysmal repayment rates in the country's largest microfinance market.

“We (MFIs) have offered to recast loans in the plan submitted to the AP government. Under the proposal, we plan to charge an interest rate of 15 per cent on bad loans from October 15,” the Share Microfinance Managing Director, Mr Udaia Kumar, told PTI over the phone from Hyderabad.

The repayment rate in the State is as low as below 5 per cent, according to many MFI players.

It was alleged earlier that micro financiers were charging exorbitant interest rates of over 30 per cent before the State government clamped down on the business last October.

The rate was subsequently capped at 24 per cent by the Reserve Bank.

Mr Kumar was referring to a letter written by the industry's umbrella body, Microfinance Institutions Network (MFIN), to the Andhra Pradesh government for certain relaxations in a law governing the business.

AP, which accounts for 30 per cent of the MFI business in the country, had come out with a stringent law to regulate operators, following allegations of coercive collection practices resulting in a spate of suicides by harried borrowers.

Emboldened by the legislation, borrowers refused to repay their loans, pushing the industry into a deep crisis.

In this regard, Mr Kumar said Share, which witnesses over 45 per cent of its business from AP, has observed a repayment rate of only 10 per cent over the last few months.

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