United Andhra Pradesh was once one of their biggest market – but the micro finance institutions never really picked up since the 2010 debacle. The state, which gave them unprecedented growth, is now their key concern. The MFIs, operating in AP and Telangana are facing funding constraints, recovery hassles and have hardly added new borrowers. They had to close branches, substantially trim the workforce and in some cases, even make an exit.
The then state government brought in the Andhra Pradesh Microfinance Institutions (regulation of money lending) Act, 2010, after reports of unethical recovery methods, which allegedly led to suicides by borrowers. MFIs are also now statutorily required to update their clients’ database with registered Credit Bureaus. Now over 9 million from AP and Telangana are registered as defaulters.
Before the AP crisis, 40 MFIs were operating in the state, of which 14 were NBFC-MFIs and 26 were NGOs and trust MFIs. Among the NBFC-MFIs, Trident and Sharadha have exited, and around 90 per cent of the NGO and trust MFIs no longer operate here, said Share Microfin. Share has a pan-India presence of 751 branches in 18 states. In AP, it has just 177 compared with 454 before the crisis.
SKS Microfinance, the only listed MFI, is a shadow of its past in the state, even as it is growing at a healthy pace in the rest of India. Spandana, which had a Rs 1,600-crore portfolio at the time of the crisis in 2010 in Andhra Pradesh, recovered Rs 1,000 crore and had to write off Rs 600 crore. Nearly 80 to 85 per cent of all financial resources disbursed by AP MFIs are raised from banks and other financial institutions. The limited funding has also given rise to liquidity issues and the resultant losses accrued have eroded the net worth of the companies with large operations in AP.
Spandana operates in 12 states including AP and Telangana, and now its biggest markets are Madhya Pradesh and Karnataka. However, in terms of portfolio, Andhra Pradesh is still the biggest but it is on their books as bad loans. “We are just carrying on with whatever is the portfolio. We do continuous follow up but it is costing us more. To recover Re 1, we are spending nearly Rs 100 in AP,” Spandana’s representative said.