India micro-lenders facing crisis, warns industry
NEW DELHI: India's seven-billion-dollar microfinance industry could be thrown into crisis by a bill that seeks to regulate lending to the poor more tightly, a lobby representing the sector has warned. The legislation, slated to be taken up Tuesday by lawmakers in southern Andhra Pradesh state --hub of India's micro-credit activities --sets new rules aimed at cracking down on aggressive lending and recovery practices.
"The bill will make it impossible for micro-lenders to operate in the state and effectively put us out of business there," Vijay Mahajan, head of the Microfinance Institutions Network or MFIN, said in an interview late Saturday. Andhra Pradesh accounts for 2.5 billion dollars of micro-loans outstanding out of seven billion dollars nationwide, said Mahajan, whose MFIN represents 44 of India's leading micro-lenders. The microfinance sector has --until recently --been hailed as a saviour of India's poor for providing loans averaging 250 dollars to millions of borrowers --often small entrepreneurs --unable to get credit from mainstream banks.
But the micro-financiers' surging profits, accusations of coercion and interest charges that can exceed 30 percent have led to mounting controversy with some critics accusing them of becoming grasping moneylenders.
The new bill permits loans to be collected only at local government centres rather than at homes, which MFIN says will make it much tougher for borrowers to repay. It also only allows lenders to make collections once a month instead of the common weekly cycle across India. "The bill is unworkable," Mahajan said, adding one of the biggest casualties would be India's largest forprofit micro-financier SKS which staged a highly successful initial share offer in August. -PB News