Microfinance institutions face Rs 6,500-cr bad loans in AP | india | Hindustan Times
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Microfinance institutions face Rs 6,500-cr bad loans in AP

Microfinance institutions (MFIs), which were branded the agents of change for financial inclusion in the country, may suffer losses of around Rs 6,500 crore in Andhra Pradesh alone, Vijay Mahajan, president, Microfinance Institutions Network (MFIN), told HT in an interview.

india Updated: Mar 28, 2011 21:45 IST
Sachin Dave

Microfinance institutions (MFIs), which were branded the agents of change for financial inclusion in the country, may suffer losses of around Rs 6,500 crore in Andhra Pradesh alone, Vijay Mahajan, president, Microfinance Institutions Network (MFIN), told HT in an interview.

Mahajan, also chairman of BASIX, an MFI, said, "There have been outstanding loans of around Rs 7,200 crore which has become uncollectable. So MFIs are looking at a loss of anywhere around Rs 6,500 crore in Andhra Pradesh alone."

He said that these expected losses would be apart from what MFIs may suffer in other states due to the "borrower behaviour."

MFIN has proposed the state government that MFIs are willing to restructure loans of highly indebted households.

But the state government has not responded to the request yet, Mahajan said.

MFIs were criticised for their high interest rates of 28 to 30% but the institutes blame this on expensive financial and operational costs. The state had come down hard on MFIs and framed a tough law.

"The government is well within its right to come up with a legislation but it should also ensure that contracts are honoured in its domain. Here about 10 million people have not stuck to their contracts and the government has not just remained a mute witness but almost enticing it," he said.

The industry is also facing liquidity crunch. "Around 80% of sources are borrowed from banks. So there is no repayment on one hand while no fresh lending even to those with zero outstanding on the other," said Mahajan.