In­dia mi­cro-len­ders fac­ing cri­sis, warns in­dus­try

The Pak Banker - - Front Page -

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

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