The Business Standard, an Indian financial newspaper, recently reported that a third of the loans made by Indian banks’ to microfinance institutions (MFIs) are in the process of being structured, due to the MFIs inability to repay following the turmoil in the sector in the state of Andhra Pradesh that began in late 2010. According to a report by the Malegam Committee, a sub-committee of the Reserve Bank of India, as of March 2010 approximately INR 138 billion (USD 3.06 billion) in loans were outstanding to MFIs from the Small Industries Development Bank of India, a government-owned bank providing credit to medium and large-scale MFIs and other banks. The report also stated that banks hold an additional INR 42 billion (USD 932 million) in securitized paper from MFIs.
It has been reported that loans worth INR 64 billion (USD 1.42 billion) are set to be restructured for five MFIs: Asmitha Microfin Limited, Future Financial Services Limited, SHARE Microfin Limited, Spandana Sphoorthy Financial Limited and Trident Microfin Private Limited. The total outstanding debt of these five MFIs is reported to be INR 74 billion (USD 1.64 billion).
Puli Kishore Kumar, promoter and CEO of Trident Mircofin, said “We have not received fresh funding from banks since October. We have been running the business through collections from outside Andhra Pradesh, from states such as Maharashtra and Madhya Pradesh. If the restructuring goes through, we will be able to run the business for at least one more year without raising more funds.” [1]
Unnamed analysts cited by Business Standard argue that despite debt restructuring being the only option for some Indian MFIs restructuring alone will not solve the microfinance sector’s “structural issues” [1].
By Medha Ravi, Research Associate
About Trident Microfin Private Limited: Trident Microfin Private Limited (formerly Annapurna Financial Services Private Limited) is a microfinance institution established in 2007 and headquartered in Hyderabad, Andhra Pradesh, India. The goal of the company is to provide comprehensive financial and business solutions to enterprises and low-income individuals, particularly women and microenterprises, in a socially, economically and environmentally sustainable manner.Trident reported total assets of INR 1.5 billion (USD 33 million) as of June 30, 2010.
About SHARE Microfin: SHARE Microfin Limited is a microfinance institution (MFI) based in Hyderabad, India. It began operations in 1989 as a nonprofit. It converted into a non-bank financial institution in 2000. It offers loans—primarily to women—as well as training and consulting to microentrepreneurs. As of March 31, 2010, it has USD 577 million in assets, a gross loan portfolio of USD 490 million, 990 branches, 2.3 million active borrowers, a return on assets of 5.50 percent and return on equity of 45.2 percent.
About Spandana Sphoorty Financial Limited: Spandana Sphoorty Financial Limited provides microcredit and “credit-plus” services to low-income households in India. The company was founded by Padmaja Reddy in 1998 and receives its funding from development finance institutions and banks. As of year-end 2009 Spandana had a gross loan portfolio of USD 787 million, 3.7 million borrowers, return on assets (ROA) of 8.99 percent and return on equity (ROE) of 55.7 percent.
Source and Resources:
[1] Business Standard news article, “A third of banks’ MFI loans go into restructuring”, http://www.business-standard.com/india/news/a-thirdbanks-mfi-loans-go-into-restructuring/432318/
MicroCapital.org story, April 19, 2011, “MICROCAPITAL BRIEF: Indian Banks Seek Personal Guarantees from Microfinance Institution (MFI) Executives As Condition of Debt Restructuring”, https://www.microcapital.org/microcapital-brief-indian-banks-seek-personal-guarantees-from-microfinance-institution-mfi-executives-as-condition-of-debt-restructuring/
MicroCapital.org story, March 22, 2011, “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, November 5, 2010, “MICROCAPITAL BRIEF: India’s Microfinance Industry on Brink of “Collapse” Due to Credit Freeze in State of Andhra Pradesh”, https://www.microcapital.org/microcapital-brief-indias-microfinance-industry-on-brink-of-collapse-due-to-credit-freeze-in-state-of-andhra-pradesh/
MicroCapital’s Microfinance Universe Profile: SHARE Microfin Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SHARE+Microfin+Limited
MicroCapital’s Microfinance Universe Profile: Asmitha Microfin Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Asmitha+Microfin+Limited
MicroCapital’s Microfinance Universe profile: Spandana Sphoorty Financial Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Spandana+Sphoorty+Financial+Ltd
MicroCapital Universe Profile: Trident Microfin Private Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Trident+Microfinance
Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/
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