Lenders Meet May Offer Respite to Troubled MFIs    
Industry News

By : Sreekala G & Sai Deepika Amirapu, The Economic Times

HYDERABAD: Microfinance institutions (MFIs), which are finding the going tough following an Andhra Pradesh ordinance on curbing coercive practices by moneylenders, may soon get a respite.

In an effort to address their outstanding credit liabilities and liquidity problems, Small Industries and Development Bank of India (Sidbi) is organising a lenders’ meet in Hyderabad.

“The meet is expected to discuss rescheduling of loans by MFIs to borrowers. The state government is trying to convince MFIs to reschedule credit so that a borrower’s debt servicing cost does not exceed 40% of his annual income.

In order to do this, banks also have to agree to extend the tenure of loans, considering that Rs 7,500-crore loan linkages to MFIs are outstanding,” said R Subramaniam, principal secretary, rural development, government of Andhra Pradesh.

He said there were 80 lakh rural households in Andhra Pradesh and each has a loan liability of over Rs 30,000 a year. “This includes self-help group (SHG) and MFI borrowings. With an annual household income of Rs 46,000, this liability is well above their credit limit,” he said.

The meet is expected to be attended by leading private sector banks such as ICICI Bank , Axis Bank and HDFC Bank besides public sector lenders like Andhra Bank. “The current scenario in Andhra Pradesh has lead to some impairment in cash flows. At the lender meet, we will assess the liquidity requirements of the MFIs,” said Andhra Bank CMD Ramachandran.

MFIs have alleged that their business was hit after the Andhra Pradesh government came out with the ordinance. Last week, the government tabled the Bill in the Assembly. Meanwhile, the government has said it was offering help to MFIs to comply with regulatory procedures. “We even gave them access to central database where they can access data related to borrower’s ration card and SHG membership,” said Mr Subramaniam.

According to him, the aim was to resolve the problems faced by MFIs without hurting the borrowers. The government has suggested that the MFIs should be able to reschedule the existing debt by offering longer tenure. The choice of repayment should be left to borrowers but it should be executed in an open forum in the presence of a gram panchayat official.

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