The Asian Development Bank (ADB), a multilateral finance institution that is based in Manila, recently reported that it will not back microfinance institutions (MFIs) in the Indian state of Andhra Pradesh as part of its risk participation program. In December 2010, ADB launched a USD 250 million facility to assume up to 50 percent of the default risk of institutions that lend on a wholesale basis to MFIs. However, operations in Andhra Pradesh are to be excluded from the program as a result of the recent exposure of bad practices at some MFIs that led to a dropoff in repayments and subsequent credit crunch.
ADB’s principal investment officer for private sector capital markets, Hasib Ahmed, explains, “This is the first time we have taken such an initiative. We need more clarity on the financial and regulatory environment for microfinance companies in Andhra Pradesh.” According to ADB, Andhra Pradesh accounts for approximately one-third of lending in India.
An unnamed source was quoted recently by India’s Business Standard newspaper as saying that the ADB fund had earmarked USD 75 million of its guarantee fund to back lending in India and elsewhere in Asia by Standard Chartered, an international bank based in the United Kingdom.
By Julie Moksim, Research Associate
About the Asian Development Bank (ADB): Established in 1966 and headquartered in Manila, the Philippines, the Asian Development Bank (ADB) is a development finance institution that consists of sixty-seven members, of which forty-eight are located in the region. The ADB has three strategic priorities: to foster inclusive growth, to facilitate regional integration and to ensure environmentally sustainable growth. To accomplish these objectives, the ADB uses loans, technical assistance programs, grants, equity investments and guarantees to private companies in member countries. The ADB reported a total capitalization of USD 56 billion as of December 31, 2009.
Sources and Additional Resources:
Business Standard: “ADB Refuses to Back Loans to Andhra MFIs” by Somasroy Chakraborty, March 24, 2011, http://www.business-standard.com/india/news/adb-refuses-to-back-loans-to…
MicroCapital.org Brief, March 14, 2011: India’s Andhra Pradesh State to Tighten Local Microfinance Institutions (Regulation of Moneylending) Act, https://www.microcapital.org/microcapital-brief-indias-andhra-pradesh-sta…
MicroCapital.org Brief: December 22, 2010: Asian Development Bank (ADB) Launches $250m Microfinance Risk Participation Program, https://www.microcapital.org/microcapital-brief-asian-development-bank-ad…
MicroCapital’s Microfinance Universe Profile: Asian Development Bank (ADB)
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Asi…
Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/
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