MICROCAPITAL BRIEF: Retail Microfinance Institution (MFI) Loans Taking Two Months to Process in Andhra Pradesh, India

Since the state government of Andhra Pradesh implemented a law in October 2010 that requires microfinance institutions (MFIs) to get approval from district officials before disbursing loans, it now reportedly takes approximately two months to process loans. As part of the loan application process, MFIs have to provide information pertaining to an applicant’s credit history, which include other outstanding loans. The information is then verified by a district official who must approve the loan before it is disbursed.

According to M R Rao, CEO of SKS Microfinance Limited, an Indian MFI, SKS Microfinance submitted 162 loan applications to district officials on November 27, 2010. As of January 21, 2011 46 of those have been approved. SKS Microfinance is awaiting approval for a total of 11,000 applications and is gathering information to submit another 80,000. Another unnamed Indian MFI estimated that 90 percent of its loan applications would be rejected. Despite the slow pace of the process, the state government maintains that it will improve the credit situation in Andhra Pradesh by preventing multiple lending and thus over-indebtedness.

By Julie Moksim, Research Associate

Source:

The Hindu Business Line: “MFI Loan Processing Now Takes More Than Two Months” by G Naga Sridhar, January 21, 2011, http://www.thehindubusinessline.com/2011/01/22/stories/2011012251540900.htm

MicroCapital.org Brief, December 17, 2010: Local Government in Indian State of Andhra Pradesh Considers Additional Microfinance Regulation, Requires Disclosure of Operational Procedures, https://www.microcapital.org/microcapital-brief-local-government-in-indian-state-of-andhra-pradesh-considers-additional-microfinance-regulation-requires-disclosure-of-operational-procedures/

MicroCapital.org Brief, November 15, 2010: Indian Government Considers Legislation Banning Microfinance Institutions (MFIs) From Making Multiple Loans to Borrowers, https://www.microcapital.org/microcapital-brief-indian-government-considers-legislation-banning-microfinance-institutions-mfis-from-making-multiple-loans-to-borrowers/

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