It has been reported that approximately 9.2 million of 32 million Indian microfinance clients have defaulted on loan repayment since 2010. The scale of defaults has been attributed to the Andhra Pradesh (AP) Microfinance Institutions (Regulation of Moneylending) Act passed in October 2010 that limited microlending by private companies in the state of Andhra Pradesh and mandated penalties for “coercive action” relating to collections. The majority of the defaulting borrowers are women from Andhra Pradesh, and they will likely have difficulty receiving future loans from banks and microfinance institutions (MFIs) as MFIs are now required to submit client data to Indian credit bureaus.
According to Alok Prasad, chief executive officer of Microfinance Institutions Network (MFIN), a trade association of 46 Indian microfinance lenders, “the repayment rates of microfinance clients outside Andhra are at 98-99 percent levels,” and rates in Andhra have plummeted to below ten percent.
By Charlotte Newman, Research Associate
About Microfinance Institutions Network (MFIN)
The Microfinance Institutions Network (MFIN) is a trade association of 46 Indian microlenders that operate as non-banking finance companies and together reportedly account for approximately 80 percent of the Indian market. MFIN is supported by the Omidyar Network, a US-based philanthropic investment firm, and the International Finance Corporation (IFC), a member of the World Bank Group.
Sources and Additional Resources:
Business Standard: “At 9.3 mn, a Third of MFI Borrowers are Defaulters,” http://business-standard.com/india/news/at-93-mnthirdmfi-borrowersdefaulters/468617/
The PRS Blog: “Andhra Pradesh Micro Finance Institutions (Regulation of Moneylending) Act, 2010,” http://www.prsindia.org/theprsblog/2010/12/16/andhra-pradesh-micro-finance-institutions-regulation-of-moneylending-act-2010/
RBI Notification: “Submission of Credit Information to Credit Information Bureau (CIB)”, http://rbidocs.rbi.org.in/rdocs/notification/PDFs/29663.pdf
MicroCapital.org story, March 19, 2012, “MICROCAPITAL BRIEF: India’s SKS Microfinance Responds to Associated Press Article on Suicides in Andhra Pradesh, Calls Allegations ‘Baseless’,” http://www.microcapital.org/microcapital-brief-indias-sks-microfinance-responds-to-associated-press-article-on-suicides-in-andhra-pradesh-calls-allegations-baseless/
MicroCapital.org story, March 13, 2012, “MICROCAPITAL BRIEF: Small Industries Development Bank of India (SIDBI) Requires SKS Microfinance to Lend Only Outside of Andhra Pradesh,” http://www.microcapital.org/microcapital-brief-small-industries-development-bank-of-india-sidbi-requires-sks-microfinance-to-lend-only-outside-andhra-pradesh/
MicroCapital Universe Profile: Microfinance Institutions Network (MFIN)
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