MICROCAPITAL BRIEF: Under Pressure from State Government of Andhra Pradesh, Indian Microfinance Institutions Agree to Cap Interest Rates at 24%

Several major microfinance institutions (MFIs) in the Indian state of Andhra Pradesh have agreed to cap interest rates at 24 percent per year after a series of politically-triggered freezes on bank lending to MFIs that followed an uproar regarding debt collector harassment that was linked to a number borrower suicides. MFI managers have reported that they still facing trouble collecting repayment on outstanding loans. Field workers have also been arrested and detained by local police. Encouragement from local government that borrowers not pay back their loans have also hampered the operations of MFIs. Microfinance executives are warning of “systemic risk” if normal operations do not resume since commercial banks still have significant loans outstanding to MFIs. The microfinance industry in India has an estimated gross loan portfolio of USD 6.7 billion and 30 million borrowers [1].

By Diana Baide, Research Assistant

[1] Financial Times. “India’s microlenders cap rates” by Amy Kazmin, 4 November 2010

http://www.ft.com/cms/s/0/7f0008ae-e841-11df-8995-00144feab49a.html?ftcamp=rss#axzz14QP7StxI

MicroCapital. “MICROCAPITAL BRIEF: Payment Strike Hits India’s Andhra Pradesh State As Local Governments Urge Microfinance Borrowers Not to Repay” by John Howard-Smith, 9 November 2010

http://www.microcapital.org/microcapital-brief-payment-strike-hits-india%E2%80%99s-andhra-pradesh-state-as-local-governments-urge-microfinance-borrowers-not-to-repay/

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