Rs9,000 crore at risk, business at a standstill in Andhra Pradesh: MFIs

Microfinanciers say as much as Rs9,000 crore of their money lent through 23 institutions in Andhra Pradesh has been put to risk by the state.

Following an ordinance last week and prohibition of activities by unregistered MFIs, business has come to a standstill, said microfinanciers.

“Our agents are idle. Our members (customers) have stopped attending the meetings where we seek repayments. About `9,000 crore is at risk. And there is a much bigger danger of the entire system collapsing if this situation continues for another 60 to 90 days,” Vijay Mahajan, chairman of the Microfinance Institutions Network (MFIN) said.

Interestingly, most of the money that is stuck belongs to banks since they are the key lenders. According to MFIN estimates, about 80% of the fund that is deployed by the institutions has been raised through banks while the remaining has come in from other forms including equity.

Currently, about Rs30,000 crore is the outstanding loans given out by microfinanciers at the national level and 80% of this came into the system from the banks.

In AP, where the state government issued an ordinance to discipline the MFIs in the wake of a spate of suicides by the MFI customers allegedly due to the harassment caused by the MFI agents over repayments, the total MFI portfolio is said to be about Rs9,000 crore spread in about 65 lakh households.    

“The government has rolled a grenade (the ordinance) at us without assessing its impact. We were not consulted by the government, which is a normal procedure before enacting any law by any government. As a self regulatory body, MFIN was willing to investigate into the suicides. As we understand, there is no single case of MFI harassment leading to suicides,” Mahajan said.

The MFIN is currently challenging the ordinance in the Andhra Pradesh high court. In its petition, which is expected to come up for hearing on Wednesday, the organisation is questioning the state government’s role in disciplining the MFIs.

“We are all registered with the RBI. The activity we are into is in the central list and the state government no role in interfering with the industry,” he said.

The MFIN is also opposing the compulsory registration system that has been put in place through the ordinance.

“The government is saying that the MFIs have register within 30 days by filing an application for continuing the business. But, it has not clarified on how many days it would take for the registration to be granted. This is arbitrary in nature. Similarly, the government has also mandated that the MFIs should seek repayments in public either in a panchayat office or any such public place. The lending and repayment is completely private and there is no reason why that should be done in public,” he said.

The MFIs depend largely on banks and institutional investors for raising the funds required. With the AP government passing an ordinance and the RBI too keenly following the issue through the constitution of a sub committee, the lenders are said to be a worried lot.

“The lenders are concerned though they have not asked us to repay or settle the accounts so far. But, we are worried about the dismantling of the credit discipline among the borrowers through this ordinance,” he said.