Andhra Pradesh MFIs may halve rates to stay afloat

Mumbai: The cash-strapped micro-lenders in Andhra Pradesh may recast their distressed accounts, by almost halving interest rates to 15 percent, with a view to improve the abysmal repayment rates in the largest microfinance market.

“We (MFIs) have offered to recast loans in the plan submitted to the Andhra Pradesh government. Under the proposal, we plan to charge an interest rate of 15 per cent on bad loans from October 15,” said Share Microfinance managing director Udaia Kumar from Hyderabad.

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The repayment rates in the state is as low as below 5 percent, according to many MFI players.

It was alleged earlier that microfinanciers were charging exorbitant rates of over 30 percent, before the crisis started in Andhra Pradesh last October, which then was subsequently capped at 24 percent by the Reserve Bank.

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Kumar was referring to a letter written by the industry’s umbrella body MFIN (microfinance institutions network) to the Andhra government for certain relaxations.

Andhra Pradesh, which accounts for 30 percent of the MFI business in the country, had come out with a stringent law to regulate operators, following allegations of coercive collection practices and the resultant spate of suicides by harried borrowers.

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

On this, Kumar said, Share, which has over 45 percent of its business from Andhra Pradesh, is witnessing a repayment rate of only 10 percent since the last few months.

In the wake of this, the once darling MFI sector has lost its sheen and bank funds have not been forthcoming in spite of comforting factors like RBI, deciding to be the sole regulator for the sector.

Kumar said that the MFIN proposal to the state government also has a provision to reschedule the tenors of the loans by MFIs, which are generally given for a short-term.

The proposal also involves the lenders collectively calculating the outstandings of a borrower from various MFIs and then offering a repayment plan at 15 percent.

But there are some caveats to this. Under the scheme, an outstanding of under Rs 15,000 will not be included for rescheduling, while those between Rs 15,000 and 30,000 will have to be repaid in two years, Rs 30,000-50,000 in three years and over Rs 50,000 will get repaid in four years, he said.

Kumar said the state government is presently “reviewing” the proposal and said he expects a positive response from them.

The umbrella body MFIN’s president and chairman of the second biggest MFI, Basix, Vijay Mahajan was not available for comment.

PTI