A special package proposed by microfinance institutions to recover over Rs 6,000 crore loans in Andhra Pradesh has been turned down by both the State Government and banks.
The Microfinance Institutions Network, which presented the package to the State Government and State-Level Bankers Committee (SLBC) about two month ago, has been told that no help could be extended in recovery of loans.
“We have been approached with a package. But it has been dropped as it is not possible for SLBC nor any individual bank to intervene in the recovery-related matters of MFIs,” a senior official of SLBC, Andhra Pradesh told Business Line here on Tuesday.
Private business
The special package included offers such as reduction in interest rate to 15 per cent and a prolonged period of repayment for those clients who were willing to pay.
The State Government also feels that it can, under no circumstances, ask members of self-help groups (SHGs) to repay MFI loans as it is a private business.
“We only suggested that they might possibly seek help from banks. But it is their decision and the Government has no role,” Mr Reddy Subrahmanyam, Principal Secretary, Department of Rural Development, Government of Andhra Pradesh, said.
The road ahead, then, for AP-based microfinance institutions looks uncertain as huge funds have been blocked.
Some of the companies, including SKS Microfinance, have been writing off loans worth crores of rupees every quarter.
Onus on Govt
The responsibility for bailing out MFIs would rest on the Government as it created the crisis for the sector with its AP Microfinance (Regulation of Moneylending) Act in October 2010.
“For normalisation of situation, the State Government should create positive environment for restoration of credit culture,” Mr Alok Prasad, Chief Executive Officer, Microfinance Institutions Network, said.
The AP Act should also be amended to allow more than two loans to a client and the process of obtaining no-objection from Government should be automated, he added.
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