Microfinance institutions face NPAs, allegations of harassment of clients

Source : Businessline :G. Naga Sridhar:Hyderabad, Oct 13

The asset portfolios of microfinance institutions (MFIs) appear to be under stress with increasing reports about the alleged harassments by the recovery agents in the recent past.

The surge in allegations of harassment by recovery agents and fellow-group members are indications of growing non-performing assets in the industry in general, say experts.

During the last one month, names of many big MFIs were linked with such incidents. In Andhra Pradesh alone, 25 persons committed suicide in the last one month due to harassment from recovery agents/group members, according to a senior official in the Deparment of Rural Development. 

When contacted, Mr Sajeev Viswanathan, Chief Executive Officer of Bhartiya Samruddhi Finance Ltd, the microfinance arm of Basix Group said: “It is true that asset portfolios in the microfinance industry in general are under little stress due to seasonal factors.”

Temporary

Adding that this could be only ‘temporary', Mr Viswanathan denied any harassment of clients by his company in the recent incidents.

According to Prof K. Venkata Narayana, Department of Economics, Kakatiya University, Warangal, the root cause of the problem is high rate of interest and the lack of proper bank credit to microfinance sector.

“Instead of directly providing credit to the self-help groups, commercial banks are lending to MFIs to be treated as priority sector.

“In my University Grants Commission – sponsored study of MFI impact in four districts of Andhra Pradesh, I came across many incidents of harassment of clients on the face of growing defaults,” he said.

The pressure of increasing friction in repayments, however, may not be uniform. “We don't see any pressure on our portfolios. The smaller, less professional MFI could be in some problem,” a senior functionary of SKS Microfinance said.

According to Mr Udai Kumar, Managing Director, Share Microfin, the interest rates are within reasonable limits.

“We are charging 24 per cent after borrowing at an average cost of 13 per cent. The operational costs are at nine per cent. So the margins are very reasonable,” he said.

He sees ‘little trouble' in the repayments because of the ‘talk on MFIs now-a-days' but not due to any problem from the client side.

There are about 2,500 MFIs in the country, out of which only 20 are large. The average interest rate in the industry still remains upward of 28 per cent while there are allegations that it goes over 36 per cent in some cases.