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MFIs want to recast AP loans, ready to halve rates to 15%

MFIs want to recast AP loans, ready to halve rates to 15%

Mumbai: The cash-strapped micro-lenders in Andhra Pradesh (AP) are toying with the idea of recasting their distressed accounts, by almost halving interest rates to 15%, with a view to improve the abysmal repayment rates in the largest microfinance market.

“We (MFIs) have offered to recast loans in the plan submitted to the AP government. Under the proposal, we plan to charge an interest rate of 15% on bad loans from 15 October," Share Microfinance managing director Udaia Kumar told PTI over phone from Hyderabad.

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It was alleged earlier that microfinanciers were charging exorbitant rates of over 30%, before the crisis started in AP last October, which then was subsequently capped at 24% by the Reserve Bank.

Kumar was referring to a letter written by the industry’s umbrella body MFIN (microfinance institutions network) to the Andhra government for certain relaxations.

AP, which accounts for 30% of the MFI business in the country, had come out with a stringent law to regulate operators, following allegations of coercive collection practices and the resultant spate of suicides by harried borrowers.

Emboldened by the legislation, borrowers refused to repay their loans pushing the industry into a deep crisis.

On this, Kumar said, Share, which has over 45 % of its business from AP, is witnessing a repayment rate of only 10% since the last few months.

In the wake of this, the once darling MFI sector has lost its sheen and bank funds have not been forthcoming in spite of comforting factors like RBI, deciding to be the sole regulator for the sector.

Kumar said that the MFIN proposal to the state government also has a provision to reschedule the tenors of the loans by MFIs, which are generally given for a short-term.

The proposal also involves the lenders collectively calculating the outstandings of a borrower from various MFIs and then offering a repayment plan at 15%.

But there are some caveats to this. Under the scheme, an outstanding of under 15,000 will not be included for rescheduling, while those between 15,000 and 30,000 will have to be repaid in two years, 30,000-50,000 in three years and over 50,000 will get repaid in four years, he said.

Kumar said the state government is presently “reviewing" the proposal and said he expects a positive response from them.

The umbrella body MFIN’s president and chairman of the second biggest MFI, Basix, Vijay Mahajan was not available for comment.