Borrowers stranded as AP Microfinance Institutions freeze operations

Microfinance Focus, Oct 20, 2010: Millions of microfinance borrowers in Andhra Pradesh are left stranded as they are denied of their weekly microfinance loans in the wake of the microfinance ordinance which was issued by state government last week, prohibiting microfinance institutions from carrying out lending and recovering operations till they get registered with the district registering authority.

Microfinance sector in Andhra Pradesh has a client outreach of 62.5 lakhs borrowers, which is the largest client base in the entire country according to the Quick Report 2010 prepared by industry association Sa-Dhan. This huge client base however stands abandoned as MFIs are prohibited from carrying out their lending activities.

Expressing his concern about the impact of the sudden closure of lending by microfinance institutions on their borrowers, Mr. Ernest Paul, CEO of Saadhana, an Andhra Pradesh based microfinance institution said, “There will be huge negative effect on the borrowers as all their cash flows are getting affected. Whatever the money they have saved for repayment, they will now be using it for some other purposes. At the same time the disbursement has stopped so whatever their planning was related to cash flows all will be affected”.

Further he added, “Borrowers are now asking government officials who are holding meetings in the fields to lend them money as they have stopped MFIs from doing so. We as a microfinance institution are seeing that they don’t agitate or get aggressive. We just want their voices to be heard”.

Following the ordinance, few NGO – MFIs & Coops like Saadhana Microfin Society, Viveka Service Society, Mahila Vikasa MACTS Ltd, HOPE, PARTNER, SIRI MACTS , PRERANA & SINDHUR called for a meeting to discuss the ordinance’s implications and future course of action. The meeting has discussed the field level responses on the ordinance.

They found that the members are very cooperative and expressing their solidarity to the institutions. Members are also assuring their repayment and in many districts they are voluntarily coming forward with their repayments to the institutions. The members are also expressing dissatisfaction about the negative and immediate impact on their cash flows.

SKS Spokesperson also spoke to Microfinance Focus and said, “As per the ordinance no MFI can continue with its operations in the state without getting registered and registration can take a long time. As a result borrowers are going to the district authorities raising questions like how they are going to survive and how they will continue their business”. SKS has claimed that it could not collect Rs 1,400 crore in the past week.

While many MFIs have declared holidays till they get registered, there are few others who are continuing with activities other than disbursement and recovery. Star Microfin Service Society for instance is sending its field staff to spend 10 minutes at each centre explaining clients as to why they should continue with MFIs, delivering financial literacy and health education modules.

“This we believe will enhance our credibility and will help us, with the support of the members to re build even more stronger and ethical business models”, said Mr. SC Hassain, CEO of Star Microfin Service Society.

In the wake of their loss, borrowers have reportedly filed a petition against the ordinance in Andhra Pradesh High Court claiming that they are in need of money and government cannot take a step which can have such an adverse affect on their livelihoods.

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