Microfinancier cash cycles extend as repayments halt

Microfinance institutions (MFIs) operating in Andhra Pradesh are in real trouble. Recovery of loans is said to be dropping by the day, pushing them into a delicate situation over liquidity. Though the companies are not willing to share their exact recovery rates, industry sources said they are unable to recover about 85-90% of their loans because of a hostile ground situation.

“Things have moved from bad to worse. The companies are not able to go to half of the villages and even in those villages where they are able to go, there are no full recoveries,” Vijay Mahajan, president of the Microfinance Institutions Network (MFIN) told DNA.

Of the 44 members the MFIN has in the country, about 24, including SKS Microfinance, operate in Andhra Pradesh and of the Rs33,000 crore portfolio these MFIs together have, about `9,000 crore is deployed in the state.

“There are worries even among lenders about the situation. Liquidity is becoming a problem now. Fortunately, most of the MFIs are able to manage the situation because of the recoveries in other parts of the country,” said Mahajan.

According to him, the slippage in recoveries is about 80% or more.

“There is no interest factor now. The drop in recoveries is not because the MFIs are charging more interest. It is primarily due to a hostile political situation. It is some politicians who are encouraging people not to pay. Unless they come out and ask people to start repaying the loans, there is nothing an MFI can do for improving the situation,” he explained.

Trouble for MFIs in the state started after a spate of suicides by the borrowers, allegedly due to coercive recovery methods adopted by the MFIs. The government stepped in at that point by promulgating an ordinance for disciplining the rogue MFIs. The ordinance had barred the MFIs from carrying out recoveries till the institutions registered themselves with the government. Though the Andhra high court intervened following petitions by the MFIN and other members, by asking the companies to carry out their normal business while complying with the ordinance, the ground level situation did not improve much.

“The credit discipline in terms of repayment as per schedule has gone completely off-track. People stopped repaying for over a month now and it is still not coming back to normal,” Mahajan said.

MFIs recover about Rs200 crore every week from the borrowers and their liquidity in terms of business expansion and disbursal of fresh loans is directly linked to the recoveries they make.

According to industry sources, once the recoveries stop, it becomes difficult for the companies to issue fresh loans as well.

“No recoveries and no fresh loans means the business has come to a halt. That is exactly what most of us are facing today in AP, which is an important market for most of the MFIs,” an industry source said.

Though putting up a brave face till recently, even the banks, which are the primary lenders to the MFIs, are said to be worried about the grim situation in the state. According to Mahajan, the MFIs are still not defaulting on their repayments due to the healthy repayment situation in other states. However, industry sources said the liquidity crisis in Andhra Pradesh is likely to affect the overall health of many MFIs if the impasse continues for another 2-3 weeks.

“As of now, there is still no problem in our repayments to banks. But, with about 25-30% of our portfolio at risk, it would be difficult for us to sustain the situation in the days to come. We are making every effort to regain the market, but unless there is political support to what we are doing, there is no way we can get our money back in AP,” said the CEO of another MFI.