Microfinance firms struggling under debt burden

HYDERABAD: Exactly a year after the state government introduced a self-styled AP Micro Finance Institutions Act— a first in the country— MFIs are grappling to survive. Not only have repayments plunged from about 90 per cent to less than 10 per cent in the past year, fresh loan disbursements are few and far between.The Act prevents MFIs from offering multiple loans and stipulates they cannot give loans without government permission.Lending from banks has also dried up with MFIs coming under fire for allegedly charging exorbitant interest rates and pressurising borrowers to repay loans.As a result, operations have been hit hard and companies including top five players in the country chiefly SKS Microfinance Ltd, Bharatiya Samruddhi Finance of Basix Group, Spandana Spoorty, SHARE Microfin and Asmita Microfinance Ltd are now diversifying into other services such as offering insurance policies, gold loans and credit for buying mobiles.“We are not adding any new members this year. We’d rather focus on servicing existing customers. While micro loans will continue to be our activity, we are planning to seek a banking licence so as to diversify our services. Besides, we are also conducting pilot programmes such as loans for mobile phones and facilitating kirana stores to buy goods on credit,” Dilli Raj, CFO, SKS Microfinance told Express.SKS, the largest provider of small loans, has over 7 million customers including 5 million members from other states. It disbursed over Rs 7,500 crore last year and is likely to lend almost a similar amount this year.Following the crisis, the company reported a net loss of Rs 218.74 crore for the quarter ended June 2011 compared to a net profit of Rs 66.69 crore in the previous year.Its total income too dropped by about 48 per cent.On the other hand, Spandana Spoorty, Share Microfin and Asmita have opted for a Corporate Debt Restructuring package with lenders in order to revive operations.Asmitha had a total debt component of Rs 1,138 crore, while Share and Spandan’s debt stood at Rs 3,800 crore and Rs 2,000 crore respectively. As per terms of the agreement, lenders have agreed to restructure debt repayment for a period of seven years including providing a one year moratorium on repayments."We are exploring options such as insurance to diversify our risks. With the existing network, we would be able to offer a lot more services to the same set of customers,” said Udaia Kumar, managing director, Share Microfin.P Kishore Kumar, managing director, Trident Microfinance added the company would look at new geographies.“We might as well look at the service area approach to find new customers and be competitive.”