In a broad reaching agreement, Microfinance Institutions (MFIs) operating in Andhra Pradesh, India have reached an agreement with the state government on MFI interest rates, product portfolio, inter-MFI competition, credit disbursement and loan recovery methodologies. An agreement pertaining to a smaller jurisdiction – the Krishna district of Andhra Pradesh was earlier reported on MicroCapital.
As per the terms of the agreement, MFIs have agreed to an interest rate ceiling of 15%. They have agreed to desist from providing multiple credit to an existing borrower and recover loans at a pace compatible with the borrower’s income level. MFIs are also to remain strictly within the micro-credit domain, avoiding micro-insurance products.
This marks an important step in the ongoing imbroglio between the state government and MFIs, which has been widely reported, not only in Indian newspapers but also by the international press. The state government had came down heavily on MFIs following reports of farmer suicides due to heavy-handed collection methods,. The state government rapped four MFIs - Spandana, Asmita, Umduma Poddu Pedatha and Share Microfin while credit disbursements, especially those of ICICI bank, which writes most of these loans using these MFIs as disbursement and collection agents, faced potential write-offs worth Rs 500Crore (USD 100 million).
There are over half a dozen MFIs in Andhra Pradesh. Competition for the same markets led to these MFIs lending to the same borrower. When floods in the Krishna and adjoining districts further dulled the recovery outlook, recovery practices contributed to suicides and attracted the attention of the local administration.
While a list of all MFIs who have signed off on the agreement is not available, a couple of large MFIs including BASIX, have not agreed to the terms of the government.
Resources
1) Business Standard: “Andhra MFIs agree to slash interest rates to 15%”
2) Microcapital blog: “ Indian Bank – ICICI Reaches Arrangement with Provincial Government on Micro-Loan Interest Rates”
3) ICICI Bank: Financials
4) Financial Express: “ICICI Bank targets 250 MFIs”
5) Spandana: MixMarket Profile / CGAP Case Study
6) Share Microfin: MixMarket Profile
7) Asmita: MixMarket Profile
8) BASIX: MixMarket Profile
