Microfinancier expansion plans hit by Andhra fiasco

The contagion from the crisis-hit Andhra Pradesh microfinance sector may not have spread to other states yet, but microfinance institutions (MFIs) are slow in expanding to newer states, focusing instead on ramping up presence in states they already operate in.

Collections from borrowers are stable at 90-95% in states other than Andhra Pradesh.

“We are present in 18 states (excluding Andhra Pradesh). We are planning to penetrate further in these states,” said Dilli Raj, chief financial officer, SKS Microfinance.

SKS Microfinance plans to expand its non-Andhra book — Rs2,900 crore as on March 31 — by 50% this fiscal, he said.

The company had on Saturday announced that Suresh Gurumani, who was removed as CEO in October last year, had tendered his resignation as a director of the board.

Meanwhile, other MFIs too are going slow on expansion.
“I wish to tap new geographies. But, since we are stuck with the AP problem, I am not finding time and resource to think on this. We want to go to places where other MFIs are not working. There is a lot of potential in those areas,” said Puli Kishore Kumar, promoter and CEO of Trident Microfinance. Trident currently operates across Andhra Pradesh, Maharashtra and Madhya Pradesh.

An official from BASIX, who did not wish to be named, said, “Right now funding is scarce. We are in a cost-cutting mode due to the Andhra Pradesh exposure. We won’t be spreading our wings in other areas.”
 
According to a report by Jaynee Shah of Avendus India Equity Research, bank funding to MFIs has come to a virtual halt, even for those outside AP, compelling most firms to cut down on their disbursements.

But one year down the line MFIs will be out of the Andhra Pradesh fiasco and that will be the time to expand, the report said. “With the industry now being granted priority sector status, availability of funds is likely to improve resulting in higher disbursements. Loan growth outside AP is likely to stabilise at 30% for the year ending March 2012 on the existing client base. Additionally, the potential for growth would be higher once the MFIs begin expanding into untapped geographies.”

According to Alok Prasad, CEO of Microfinance Institutions Network (MFIN), a self regulatory organisation of microfinance institutions, “Untapped geographies are the areas where MFIs must go both from the point of view of business as well as from the financial inclusion agenda.