MICROCAPITAL BRIEF: Funding Shortage Continues in Indian State of Andhra Pradesh, Loans Overdue to SKS Microfinance Total $27m

London-based news agency Reuters recently reported that since the October 2010 passage of legislation by the state government of Andhra Pradesh in response to the turmoil in the microfinance sector there, funding still remains an issue for microlenders. This is despite efforts by India’s central bank, the Reserve Bank of India, to ease the liquidity crunch. According to Reuters, the issues of mission drift among for-profit players – putting short-term profits ahead of sustainability – and an uncertain regulatory outlook have contributed to the funding shortage [1]. Reuters also states that domestic lenders exercising extra caution when lending to Indian microfinance institutions (MFIs) further deter foreign investors [1].

As of March 2011, SKS Microfinance, an Indian for-profit MFI, has overdue loans amounting to approximately INR 1.25 billion (USD 27 million), with Andhra Pradesh accounting for 25 percent of this amount. M R Rao, the chief executive officer of SKS Microfinance reportedly said that “before October 2010, the repayments in Andhra Pradesh were 99 per cent. But this repayment culture appears to have gone now.” As a “de-risking” measure, Mr Rao stated that going forward, SKS would be looking to have a balanced exposure in states other than Andhra Pradesh (approximately 10 percent for each state), as repayment rates recorded in other states were still as high as 98 percent [2].

According to 2010 data from the US-based nonprofit data provider Microfinance Information Exchange (MIX), SKS Microfinance has total assets of USD 1.2 billion, a gross loan portfolio of USD 1.2 billion, approximately 6.6 million borrowers, return on assets (ROA) of 6.3 percent and return on equity (ROE) of 22.4 percent.

By Medha Ravi, Research Associate

About Reserve Bank of India (RBI):
Established in 1935, the Reserve Bank of India undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While all microfinance institutions (MFIs) and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5 percent stake in the outfit, RBI now owns just a one-percent stake in NABARD.

About SKS Microfinance:
SKS Microfinance is a microfinance institution (MFI) that was launched in 1998 and delivers microfinance products through a group-lending model to impoverished women in India. It is a for-profit, non-banking finance company that converted to a public limited company in May 2009 and launched an initial public offering on July 28, 2010. Equity investors include Quantum Hedge Fund, Sequoia Capital, Vinod Khosla, Small Industries Development Bank of India, Bajaj Allianz, Yatish Trading, Kismet Capital, Sandstone Capital, Silicon Valley Bank and Unitus. According to 2010 data from the US-based nonprofit data provider Microfinance Information Exchange (MIX), SKS Microfinance reported total assets of USD 1.2 billion, a gross loan portfolio of USD 1.2 billion, approximately 6.6 million borrowers, return on assets (ROA) of 6.3 percent and return on equity (ROE) of 22.4 percent.

Source and Resources:

[1] Reuters news article, “Lack of funding still plagues India microlenders”, http://www.reuters.com/article/2011/03/15/india-microfinance-idUSSGE72E08R20110315?pageNumber=1

[2] Business Line news article, “Loan dues of SKS Microfinance mount to Rs 1,250 cr in AP”, http://www.thehindubusinessline.com/industry-and-economy/banking/article1561848.ece?homepage=true

MicroCapital.org story, March 22, 2011, “MICROCAPITAL BRIEF: Indian Banks Collaborate on Restructuring Loans to Microfinance Institutions (MFIs), SKS Opts Out”, https://www.microcapital.org/microcapital-brief-indian-banks-collaborate-on-restructuring-loans-to-microfinance-institutions-mfis-sks-opts-out/

MicroCapital.org story, February 22, 2011, “MICROCAPITAL BRIEF: As Commercial Banks Remain Wary, Indian Microfinance Institutions (MFIs) Look Beyond Andhra Pradesh for New Markets”, https://www.microcapital.org/microcapital-brief-as-commercial-banks-remain-wary-indian-microfinance-institutions-mfis-look-beyond-andhra-pradesh-for-new-markets/

MicroCapital.org Article, February 8, 2011, “Reserve Bank of India (RBI) Relaxes Rules in Effort to Ease Microfinance Institution (MFI) Liquidity Crunch”, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-relaxes-rules-in-effort-to-ease-microfinance-institution-mfi-liquidity-crunch/

MicroCapital Microfinance Universe Profile: Reserve Bank of India (RBI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29

MicroCapital’s Microfinance Universe Profile: SKS Microfinance,
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS+Microfinance

Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/

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