AKMI releases study on Microfinance delinquency crisis in Karnataka mf sector

Microfinance Focus, Aug 13, 2010: The Association of Karnataka Microfinance Institutions (AKMI) has today released an independent report on microfinance in the state of Karnataka, ‘Competition & Role of External Agents’, in Bangalore, India. The study was commissioned by EDA Rural Systems and CGAP (Consultative Group to Assist the Poor).

At Report Launch Function . N K Maini (SIDBI), Extreme Left, Suresh K Krishna ( GFSPL) in Middle, Samit Ghosh (Ujjivan), Right

Probing the 2009 delinquency crisis in the microfinance sector in Southern Karnataka, the report highlights key issues which led to mass defaults by microfinance clients and recommends measures to microfinance institutions to prevent such a situation from occurring again.

The report draws attention to the aggressive growth of MFIs in terms of outreach which has caused dilution of processes & disciplines in acquiring customer outreach inherent in the group lending methodologies. This resulted in proliferations of agents in sourcing customers and in some cases phantom customers were used by fraudsters which triggered the crisis as is the case in the Kolar district.

It shows that the crisis was a result of not only undisciplined lending to some sections of the customers but other issues gender equations in families, down turn of silk industry, vested business interest and communal organization, also played a role.

Criticising the ‘zero delinquency’ goal of microfinance institutions (MFIs), the reports underlines the coercive collection practices adopted by MFIs which are disrupting family and professional lives of borrowers.

Presiding over the launch Mr. N K Maini, Executive Director, SIDBI said, “When we started our journey with microfinance we didn’t envisage such a high growth for the sector and as we have grown we have a reached a juncture where certain issues have occurred”. Assuring that measures will be taken to address these issues, he added, “SIDBI along with MFIN and Sa-Dhan has put in place an agenda of responsible microfinance and will work towards it”.

Mr. Maini also announced SIDBI’s plan of setting up a Lenders Forum for ensuring transparency in the rates of interest charged by MFIs. He also suggested creation of ‘India MIX’ platform for structured reporting from Indian MFIs similar to the international Microfinance Information Exchange (MIX) which delivers data service, analysis, research and business information about MFIs worldwide.

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