Indicating that the tumultous path, for microfinance operations in Andhra Pradesh (AP), is still not free of hurdles, about 50% of the loan applications submitted by microfinance institutions (MFIs) to the authorities for approval, have been rejected and the remaining are also likely to be shot down.

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According to sources in the government, the key reason for rejection is said to be the practices of MFIs and non-compliance, in terms of keeping away from multiple lending.

The new regulation in Andhra Pradesh mandates that MFIs should not indulge in multiple lending or one borrower seeking loans from more than one MFI at a given point of time.

MFIs, before lending to a borrower, are also mandated to seek a no objection certificate (NOC) from the authorities. Due to this regulation, MFIs have submitted their loan proposals to the authorities.

According to sources, so far little over 1,067 loan applications have reached the authorities for issuance of the NOCs.

“About 500 have been verified and 405 have been rejected, since the applicants had other loans. About 45 applications have been cleared. The balance 567 applications are also being verified. On the face of it, most of them should get rejected too,” a source associated with the developments said.

Though the MFIs blame the authorities for lack of their preparedness in clearing the applications, government sources said that MFIs are still not doing their bit properly.

“MFIs are expected to use their own database before accepting an application. But, they still don’t do it. It is a fact that the authorities take sometime for issuing the NOCs. But, if MFIs can do their part, the processing becomes easy,” the source explained.

The Microfinance Institutions Network (MFIN), a self-regulatory body of MFIs, has been working on putting up a database for all its members. The database is expected to have the credit details of all MFI borrowers. But the database is expected to become available only by this month-end.

“Unlike in earlier situation, the data on the borrowers is becoming extremely important now. Without the data becoming available, there is no way an MFI can know the borrower’s credit details,” a senior functionary of an MFI said.

However, the government officials are not willing to buy the argument. “MFIs know the ground situation well. They have their agents constantly interacting with borrowers almost on a daily basis. Any earlier borrowing can be easily detected by the agents and sometimes more efficiently than the database. Still, MFIs are not completely doing their job,” another source commented.

Currently, the lending activity of MFIs has come to a standstill in Andhra Pradesh, which is one of the key markets for all MFIs.In the last 75 days, the MFI sources said, not a single loan has been disbursed.

“Even if the lending is allowed from now on, it would take at least three months for the companies to put their teams together,” the source said.