MFI ratings downgraded
Crisil, the rating and research firm, on Monday rated 12 major microfinance institutions (MFIs) with 'rating watch with negative implications.'business Updated: Nov 22, 2010 23:13 IST
Crisil, the rating and research firm, on Monday rated 12 major microfinance institutions (MFIs) with 'rating watch with negative implications.'
According to the rating agency, the ratings were following the Andhra Pradesh (AP) government's standoff with the MFIs. Six of the twelve MFIs were rated BB or below by Crisil. "The Andhra ordinance has been highly unfavourable for the industry resulting in precipitous drop in the collection efficiency and profitability of the MFIs, especially those operating in Andhra," the agency said in its report.
Crisil claims collections have dropped by below 20% as against almost 99% prior to the government ordinance. The report said that the creditworthiness of the MFIs also depended on their exposure to Andhra Pradesh.
"MFI's ability to raise external funding is significantly constrained. Access to fresh loans from banks and financial institutions that form a significant portion of the sector's funding, has dropped materially," Crisil said.
Crisil also rated major MFIs including SKS and Grameen Financial Service. While Grameen was rated P4+, SKS was rated P1+. Both MFIs along with others were rated "rating watch with negative."
MFIs have been on a receiving end after some women in AP who were clients of MFIs committed suicide. Although MFIs clarified that all the women regularly paid their instalments and that there was no correlation between their suicides and the loans that they took. AP government following this had strongly objected and proposed to introduce guidelines for the MFIs. Most MFIs charge interests as high as 25 to 30% per annum.