Indian Microfinance Lenders Seek Emergency Cash From Banks
Indian microfinance companies are seeking 222 million US dollar in emergency funds from banks after the Andhra Pradesh state government’s measures to regulate the industry led to a liquidity crunch.
The Microfinance Institutions Network (MFIN), a self-regulatory body, has asked for the funds in the form of business continuity facility, to ensure survival.
The move highlights the pressures that MFIs (Micro Finance Institutions) are facing after the Andhra Pradesh government issued an ordinance last month to regulate the industry’s money lending operations.
A spate of suicides, allegedly due to harassment by MFIs, triggered a political contro-versy, forcing the government to act.
Though the industry claimed innocence, the ordinance was passed, immediately making life difficult for MFIs.
Microfinance companies are still struggling to stabilize their operations – including resuming collections – in Andhra Pradesh, where they have around 2,7 billion dollar in outstanding loans to around 6,7 million borrowers.
The local government has decided to permit only monthly repayments rather than weekly collections. Industry executives fear this change could seriously erode repayment rates that had been around 98 percent prior to the crisis.
India’s commercial banks – which together have around 6 billion dollar in outstanding loans to the micro-finance industry – reacted to the recent regulatory backlash by freezing existing credit lines to the sector, compounding the pain on firms already hit by plunging collections.
Kilde: www.worldbank.org
