Oct
12
Microfinance Institutions Reach Crucial Agreement with Government in Andhra Pradesh
MicroCapital — microcapital.org
Published on October 12, 2006
In a broad reaching agreement, Microfinance Institutions (MFIs) operating in Andhra Pradesh, India have reached an agreement with the state government on MFI interest rates, product portfolio, inter-MFI competition, credit disbursement and loan recovery methodologies.
In a broad reaching agreement, Microfinance Institutions (MFIs) operating in Andhra Pradesh, India have reached an agreement with the state government on MFI interest rates, product portfolio, inter-MFI competition, credit disbursement and loan recovery methodologies. An agreement pertaining to a smaller jurisdiction – the Krishna district of Andhra Pradesh was earlier reported on MicroCapital.
As per the terms of the agreement, MFIs have agreed to an interest rate ceiling of 15%. They have agreed to desist from providing multiple credit to an existing borrower and recover loans at a pace compatible with the borrower’s income level. MFIs are also to remain strictly within the micro-credit domain, avoiding micro-insurance products.
This marks an important step in the ongoing imbroglio between the state government and MFIs, which has been widely reported, not only in Indian newspapers but also by the international press. The state government had came down heavily on MFIs following reports of farmer suicides due to heavy-handed collection methods,. The state government rapped four MFIs - Spandana, Asmita, Umduma Poddu Pedatha and Share Microfin while credit disbursements, especially those of ICICI bank, which writes most of these loans using these MFIs as disbursement and collection agents, faced potential write-offs worth Rs 500Crore (USD 100 million).
Continue reading "Microfinance Institutions Reach Crucial Agreement with Government in Andhra Pradesh"
As per the terms of the agreement, MFIs have agreed to an interest rate ceiling of 15%. They have agreed to desist from providing multiple credit to an existing borrower and recover loans at a pace compatible with the borrower’s income level. MFIs are also to remain strictly within the micro-credit domain, avoiding micro-insurance products.
This marks an important step in the ongoing imbroglio between the state government and MFIs, which has been widely reported, not only in Indian newspapers but also by the international press. The state government had came down heavily on MFIs following reports of farmer suicides due to heavy-handed collection methods,. The state government rapped four MFIs - Spandana, Asmita, Umduma Poddu Pedatha and Share Microfin while credit disbursements, especially those of ICICI bank, which writes most of these loans using these MFIs as disbursement and collection agents, faced potential write-offs worth Rs 500Crore (USD 100 million).
Continue reading "Microfinance Institutions Reach Crucial Agreement with Government in Andhra Pradesh"
Comments
Dweep Chanana
Oct 13, 2006
MFI Agreements in India
This seems like a mostly reasonable agreement despite concerns it was excessive government interference. One cannot deny the need for regulation, particularly in a largely imperfect market where customers lack information or significant bargaining power. While I'm not sure if a ceiling of 15% is advisable, preventing MFIs from making multiple loans to the same client is essential.
Interestingly, Microfinance & Muhammad Yunus have won the 2006 peace prize. My reservations notwithstanding, a much deserved accolade! Surprise it hasn't made NextBillion yet!
Rob Katz
Oct 13, 2006
Yunus, MFIs
Hi Dweep, thanks for your comment. As you wrote your comment, I was blogging about Yunus winning the Peace Prize, so I suppose we were on the same track.
Quick comment on the interest rate ceilings, I am not sure it is going to help the problem of imperfect information to impose caps. I will look around, but does anyone know if there is an "official" economic viewpoint about the impact of price caps on information?
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