Worst over for MFIs?

reported for this story by my colleague atmadip on how the credit taps might be opening up again for the mfis. which is good for them. coz the last few months have seen mfi loan portfolios shrink as bank lending dried up.

At Chennai-headquartered Equitas, the asset base is down from 950 crore to about 660 crore since March this year. Or take Ujjivan Microfinance in the east. Its loan portfolio has fallen from 620 crore to 590 crore during the same period. Satin Microfinance, which lends in the north, has seen its loan book reduce from 230 crore to 195 crore, so far this financial year. “We are seeing that portfolio of most MFIs has shrunk substantially in the last one year,” says Alok Misra, CEO of M-Cril, which rates the portfolios of MFIs.

MFIs seek a Rs 1,000 crore helpline

The Microfinance Institutions Network (MFIN), a self-regulatory body of a clutch of 44 NBFC MFIs, has asked for Rs 1,000 crore in the form of business continuity facility, an euphemism for emergency money, to ensure survival. In an email to fellow MFIN members, Vijay Mahajan, the president of the NBFC-MFI association, said the loan has been sought from SIDBI, SBI , ICICI and other major banks.“This will be used for tiding over liquidity crisis for any MFI, to obviate default, as well as to permit token disbursements in non-AP states, so that recoveries continue there,” the email, a copy of which is with ET, said.

MFIs come under pressure after the Andhra Pradesh government issued an ordinance last month to regulate the industry’s money lending operations. The complete story, here.

On the AP Microfinance crisis

a few months ago, papers and tv channels in andhra pradesh began reporting that women who had taken loans from microfinance companies were killing themselves. after 2005-06, when there had been similar reports of suicides amongst MFI borrowers back in 2005-06 (see this), this was the second such outbreak.

the whole thing was surprising. while media reports were blaming multiple borrowings and rising indebtedness, both have been around in the state for a while now. For instance, the 2009 State of the Sector report for microfinance had pegged the penetration of microfinance loans among poor households in the state at an astounding 823%. So, why this sudden rash of suicides and the distress they suggest? Had some tipping point been reached? Or was there some external shock?

In my chats with the borrowers and others, I found that the immediate trigger seemed to be a slowdown in labour markets — heavy rains hurt agri employment, NREGA (a national rural employment scheme) employment was hit due to a Central government missive that resulted in Andhra capping NREGA at 100 days, etc. But also that the crisis itself is not wholly of the MFIs’ making. What Andhra has is a wider failure in credit delivery (leave alone financial inclusion), and both Serp and the banks are to blame as well. Essentially, the banks lent far less than what the groups were entitled to, the MFIs proliferated, this explosion in credit delivery resulted in a fraying of relations amongst village women, and some women, given no support for livelihood building, resorted to NREGA to keep up with repayments. When NREGA was capped, and labour markets slowed overall, matters spilled out of control.

This, of course, is journalistic research. Anecdotal in parts and nowhere as detailed a scrutiny as is needed. We urgently need to understand, I think, both the linkages between labour markets and MFIs, and the impact of microfinance on the women — as anti-caste writer Kancha Illiah says in the story, rural communities are changing in ways that we have not grasped yet.

Anyway, the full story here. Take a look.