India’s microfinance sector is still struggling to recover from the mid-2010-11 crisis in Andhra Pradesh.
According to the Microfinance Institutions Network (MFIN), the sector saw a 38% decline in gross loan disbursements to Rs 20,000 crore in 2011-12, while the total number of loan accounts fell by 22% to 26 million.
After reports of borrowers committing suicide in the state, the Andra Pradesh government had come out with the ‘AP Microfinance Ordinance’ in October 2010, which was subsequently legislated into an Act, which crippled micro-finance institutions (MFIs) including leading player SKS.
In the wake of the new regulations, repayment of MFI loans in Andhra plummeted to zero, while in other states it is still 99%.
“The full year impact of the AP ordinance was visible in 2011-12,” said Alok Prasad, CEO, MFIN. “The AP portfolios have dragged down the pan-India business because it was very large chunk of the total business in the country.”
Andhra Pradesh still has a dominant place in Indian microfinance sector, as around 15 million loan accounts of the total 26 million loan accounts in India are in the state. The state has 5,150 MFI branches, which is around 52% of the total 9,843 branches in the country.
Outside Andhra, though, the growth story looks intact. Gross disbursement by micro lenders outside the state grew by 5% to Rs 13,700 crore in 2011-12 from Rs 13,000 crore.
“The revenue of SKS Microfiance in non-Andhra Pradesh states has increased by 11% to R79 crore in the first quarter of the current fiscal,” revealed a senior official of SKS Microfinance.
SKS had to write-off around Rs 1,120 crore in AP in 2011-12.