Ramesh S Arunachalam
Rural Finance Practitioner
Much water has flown under the bridge since the now (in) famous Andhra Pradesh micro-finance crisis…
The latest from Andhra Pradesh, Tamilnadu and other states suggest that the contagion seems to be spreading slowly but surely and especially, in places where the large Andhra Pradesh MFIs and/or fast growing MFIs are operating…strange but that is reality…
As my favourite Rock Group from the 1960s, CCR (Credence Clearwater Revival) used to sing, “I heard it through the grapevine”. Read on…
1. Banks appear to be reluctant to lend to SHGs because they are well aware of the hugely indebted rural/micro-finance credit system. As one banker put it, “We are not going to let SHG members repay their overdue loans to MFIs, using our money, which are public deposits in many ways. Most SHG members are also members of JLGs and therefore, we are not sure that a fresh loan will go for anything else other than repayment of (past due) MFIs loans. This is especially true of Andhra Pradesh and perhaps Tamilnadu”. This is not so good news and if this were to happen as suggested by this banker and if MFIs also do not lend to the clients for various reasons, then, this surely is the beginning of the end of the rural/alternative credit delivery system in India…Make no mistake about that…
2. Banks also appear reluctant to restructure MFI debts, despite relaxation of norms by The RBI. Many of them appear to be insisting on MFI promoters giving their personal guarantees. Some banks are also said to be requesting MFI promoters for collateral. And, as I understand, MFI promoters are neither keen to give personal guarantees nor able (or perhaps willing) to offer collateral. So, the much awaited debt restructuring may not happen immediately…and you can imagine the consequences…
3. The aftermath of the AP crisis continues to be felt in states like Tamilnadu. Please recall that I had posted some days ago about problems in Tamilnadu regarding commissions taken for new loans through broker agents and also loan repayment money of a large AP MFI being taken away by its staff/agents. This contagion is also spreading and seems to have affected other MFIs operating in the same region of Tamilnadu. Specifically, because of such commissions taken by agents and misappropriation of loan repayment money by staff, loans worth more than Rs.10 crores are said to be fully at risk in the Panchayat Union of “Paramathy Vellore” and nearby areas, close to Tiruchengode in Tamilnadu. Please read the accompanying story of MFI staff “Srinivas” who used agents and colluded with them and eroded all the trust that the local community, people and clients had in MFIs. As a result, today, many MFIs are finding it difficult to even collect past loans in these areas
As the saga continues, what I find most alarming is the apparent unwillingness of banks to lend to SHGs (especially in AP) because of the fear that these fresh loans may be used for repaying overdue loans to MFIs – this suggests that the formal/alternative rural credit delivery system may be close to collapsing in AP and I am sure that similar impacts will be felt in other states where multiple lending’s, unscrupulous agents, reckless growth and not-so-good MFI practices have been prevalent. That is reality…
I really hope that the “powers that be” take all necessary action (swiftly) to prevent collapse of the rural/alternative credit delivery system and also restore clients’ and wider community confidence with regard to micro-finance/financial inclusion…Otherwise, the looming but impending crisis will soon become a harsh reality…
Have A Nice Day!
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