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Future of Microfinance in Andhra Pradesh and India


By Sirish  Dhurjety

(The  author  of  this  article,  Sirish  Dhurjety,  is  currently  pursuing  his  Doctoral Programme  focusing on impact investments in India. He is also the cofounder of a boutique investment bank – Capital Logic. based out of India. The views expressed in the below article are personal. Feedback can be sent to )

India’s once- booming Microfinance industry has fallen into the crosshairs of the country’s  murky politics. Will the industry survive and what could be the industry’s possible contours going forward?

Clients of SKS Microfinance ring the bell at the BSE on listing day.Img-credit:AFP

Microfinance has been very much in the news lately. The financial markets led by savvy Private Equity funds, started taking notice of and investing in the industry’s rapid growth a few years back, culminating in the highly successful first ever IPO of an Indian MFI in August  of  this  year.  Unfortunately,  the   industry’s  fortunes  have  steadily  plunged downhill thereafter. This paper connects the dots of the MFI industry scenario with other key economic and political factors playing out in the country. The views discussed in this paper are strictly non-political, but are an effort to link various situations leading up to a holistic case for the future.

On the  one  side,  most  of  the  post  crisis  headline  news  on  Microfinance  (i.e.  from September 2010) has been negative. ‘Getting it right on Microfinance’, ‘Microfinance in India is like subprime lending’,  ‘Anatomy of a crisis’, ‘Are MFIs showing Shylockian streak?’, ‘What’s wrong with Microfinance Institutions in India?’ to name a few, paint a picture  of  an  industry  struggling  to  survive.  On  the  other  side,  there  is  increasing coverage and focus on Inclusive Growth in India – meaning mainly financial inclusion, which could

be a starting step for some interesting developments in the midst of  the growing political controversy.

To begin with, MFI industry fortunes can only be understood with an appreciation for the effect this rapid industry growth has had, where it has increasingly impinged directly on the agenda of state and federal level politics in India.

Background of the situation

One of  the  key  mandates  of  our  current  government  is  Inclusive  Growth  –  mainly Financial Inclusion. Unfortunately, our national leaders have been spending more of their time in handling/ responding to the several multi- billion rupees scams and digesting poor electoral performance in a few  key states in the country. The recent controversies in

Andhra Pradesh politics – dispute within the state, Chief Minister quitting, former Chief Minister’s son  rebellious act and the MFI saga – has led to some opposition parties playing the political card by urging borrowers not to repay their loans to MFIs. Andhra Pradesh accounts for around 30% of the MFI loans in the country and has witnessed an alarming number of suicides by some debtors, purportedly due to harassment from MFI agents over repayment.

The Indian MFI industry which has close to Rs 30,000-crore in outstanding loans to 30 million borrowers is going through a rough tide and has been challenged ever since the SKS Microfinance IPO. Major Indian Public and Private Banks – State Bank of India, Bank of India, Indian Overseas Bank, Punjab National Bank, Andhra Bank, SIDBI, Axis Bank and ICICI have amongst the maximum credit exposure to MFI firms, estimated to be close to 70% of the total credit outstanding to the industry.

Some of the figures lent to MFIs by banks, according to data from a rating company, are as follows-

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