In response to a wave of negative publicity from claims that Indian microfinance institutions (MFIs) are charging interest rates that are too high and are practicing coercive loan recovery methods, some Indian MFIs are postponing their plans to raise funds.
In particular, recent reports have linked multiple suicides with intrusive methods used by MFIs to secure repayment such as the abduction of borrowers’ family members [5]. The Reserve Bank of India (RBI), the central bank of India, has also put together a subcommittee to investigate the operations of MFIs. In addition, India’s finance minister Mr Gopalan recently urged MFIs to keep their interest rates below 24 percent [6], although most MFIs currently lend at rates of approximately 30 percent [1]. SHARE Microfinance and Spandana Sphoorty, two MFIs based in Hyderabad, reportedly postponed their plans for initial public offerings (IPO) as a result of the sector’s uncertain outlook.
The Indian MFIs reporting data for 2009 to the Microfinance Information Exchange (MIX), the microfinance information clearinghouse, have an aggregate loan portfolio of USD 4.6 billion, total assets of USD 5.1 billion and 26.4 million active borrowers. SHARE Microfinance reported a gross loan portfolio of USD 491 million, total assets of USD 576.9 million and 2.4 million active borrowers in 2009, while Spandana Spoorthy reported a gross loan portfolio of total assets of USD 647 million and 1.19 million active borrowers as of 2009.
By Trevor Kwong, Research Assistant
Sources and Additional Resources:
[1] Source Article: MFIs rethink IPO plans in view of upheavals in the sector:
http://economictimes.indiatimes.com/markets/ipos/MFIs-rethink-IPO-plans-in-view-of-upheavals-in-the-sector/articleshow/6763190.cms
[2] MicroCapital Universe: SHARE Microfinance:
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SHARE+Microfin+Limited
[3] MicroCapital Universe: Spandana Sphoorty:
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Spandana+Sphoorty+Financial+Ltd
[4] Microfinance Information Exchange: India:
http://www.mixmarket.org/mfi/country/India
[5] MICROCAPITAL BRIEF: Series of Suicides Related to Microloan Repayment Rock India, Raises Questions of Whether Interest Rates Charged by Microfinance Institutions (MFIs) are Too High
http://www%2Cmicrocapital.org/microcapital-brief-series-of-suicides-related-to-microloan-repayment-rock-india-raises-questions-of-whether-interest-rates-charged-by-microfinance-institutions-mfis-are-too-high
[6] MICROCAPITAL BRIEF: India’s Finance Ministry Asks Banks to Ensure That Microfinance Institutions (MFIs) to Which They Lend Cap Lending Rates at 24%
https://www.microcapital.org/microcapital-brief-india%E2%80%99s-finance-ministry-asks-banks-to-ensure-that-microfinance-institutions-mfis-to-which-they-lend-cap-lending-rates-at-24/
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