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MFIs, and the need for MFIs to plough back some of their profits for development activities. Suggestions were made to set up coordination committees at various levels, and it was agreed that a delegation would meet the Chief Minister to apprise him of the need to exempt MFIs from the purview of a proposed amendment to the state Moneylender's Act providing for an interest rate ceiling. There were a series of further news reports during the year. Finally, in response to a demonstration involving stone-throwing by a group of irate borrowers led by a local politician outside a SHARE branch in Krishna district, demanding the return of house title deeds which had been retained as security for housing loans SHARE was making, the Collector of Krishna district moved on the branches that night. The move received widespread publicity, especially in the local Telegu press, expressing support through wildly partisan news reports and editorials. Many of the accounts even in the national press were based on basic misunderstanding of MFI procedures, exaggerations, and verbatim reproductions of official notes leaked to the press. The press did not speak up for the MFIs - issues like transactions costs do not make exciting copy The move received widespread publicity, especially in the local Telegu press, expressing support through wildly partisan news reports and editorials. Many of the accounts even in the national press were based on basic misunderstanding of MFI procedures, exaggerations, and verbatim reproductions of official notes leaked to the press. The press did not speak up for the MFIs - issues like transactions costs do not make exciting copy. A quick factual "white-paper" put out by the sector explaining MFI procedures and costs would have been invaluable. However, on March 20, Sa-Dhan issued a voluntary code of conduct to be followed by members, which were publicised through a press-conference (See Box 4.1). The RBI expressed its concern to the state government that the action it had taken could have wider repercussions by vitiating the MFI repayment culture in other parts of the state, jeopardizing about Rs 680 crore outstanding on loans made by the banks to MFIs in AP. It set up a Co-ordination Forum to discuss issues of concern to stakeholders and resolve them as soon as possible. At a meeting of the forum held on April 20 it was claimed that the MFI movement was "eating into the SHG movement", MFI practices were "barbaric" and posed a serious law and order problem, and that even the lower interest rates suggested in the March 20 code of conduct of 21-24 per cent were usurious and illegal. Spandana and SHARE announced a reduction in their interest rates, including those on current loans outstanding, to 15 per cent on a declining balance basis. It was left to a respected MFI leader to state that this rate was unacceptable to other Sa-Dhan members because it was not sustainable, and pointed out that the state government had no business to stipulate rates for NBFCs regulated by RBI. SIDBI stated that it would not increase its exposure in the state, and was commissioning a study into MFI transactions costs. To resolve outstanding issues, discussions continued between Sa-Dhan and a High Level Committee of the state government. However the state government maintained its position that interest rates should be reduced further, especially as low interest rates for the poor were a major policy initiative of the state government. A series of highly publicized visits to Krishna district by the Financial Commissioner and the state Human Rights Commission took place, and their findings leaked to the press. There had been no formal outcome of the discussions in the High Level Committee at the time of writing and an air of ambivalence continues to prevail about the state government's final position on interest rates. News reports say that it is reviving the Moneylender's Act, with interest rate ceilings to be revised by a committee from time to time. In May, RBI came out with guidelines for NBFCs to abide by a fair practices code, including giving the terms of a loan to the borrower in writing. Meanwhile Sa-Dhan is working on a more detailed Code of Conduct. 62
MFIs: Learning from the AP Crisis However there were news reports in early October that the major lender ICICI Bank had offered to break the stalemate by resuming management of its portfolio in 46 villages that had been identified by the district authorities as being particularly distressed, where it would reschedule loans and collect them though the Village Organizations (VOs -- the second tier of the Velugu structure of institutions) at the lower rate of interest already agreed to by the MFIs. The arrangement was widely seen as a "compromise", with the MFIs and lenders conceding to the long-standing demand of the government that they should lend through the VOs, at a much lower interest, and the government allowing normal operations to resume in the rest of the district. The on-time repayment rate has recovered to 40 to 50 per cent. 4 The causes of the crisis: enabling While it is somewhat arbitrary to divide the causes of the AP crisis into the categories of enabling and underlying, it is a useful analytical device. In the absence of more definitive empirical data, the numbers in the following discussion are taken mostly (from two quick small sample surveys carried out by APMAS, and is subject to revision as further studies take place. The first of these surveys was carried out to provide an objective assessment of the complaints made to the Chief Minister during his visit to Guntur in April 2005, and sampled 40 Spandana borrowers (the Guntur survey, APMAS 2005). After the crisis, a year later, APMAS conducted a second survey in Krishna district of 130 borrowers who had borrowed from either SHGs, or MFIs, or from both (the Krishna survey, APMAS 2006). The most important enabling (or contextual) cause was the near-saturation of coastal Andhra with microfinance. AP as a whole has covered a very large proportion of poor families under the SHG programme, which in AP is assisted by the World Bank and popularly referred to as Velugu. 5 Ninety-two per cent of poor households in AP had already been covered by March 2005 according to the annual report of the AP rural development department, and the project aimed to cover the rest by end-2005, (Government of AP 2005). For the MFIs, the high proportion of poor landless or near-landless agricultural labour families in the coastal districts and the high population density generally, provided strong demand conditions, and important operational cost saving advantages. Spandana actually started life in Guntur district, next door to Krishna district. Given the high coverage of both Velugu and the MFIs in coastal Andhra, the Guntur survey found that dual membership was as high as 67 per cent, and that multiple membership in Velugu, Spandana and SHARE was 32 per cent. The proportion of dual membership in a second quick survey of 130 borrowers from any of the three sources undertaken in Krishna district just after the crisis was even higher, at 82 per cent. Further, despite the presence in the area of two large MFIs (the two largest in the country) both expanding rapidly, reportedly with considerable rivalry, new local MFIs were still springing up and joining them. 6 The most important enabling (or contextual) cause was the near-saturation of coastal Andhra with microfinance Despite all this competition, the Krishna survey reported the widespread presence of informal lenders, referred to locally as "girigiri" bankers, 7 indicating that demand was still not satiated. 18 per cent of borrowers had taken loans at some time from moneylenders to pay for MFI instalments. However, despite the much publicised "comeback" of moneylenders, 80 per cent of respondents said dependence on moneylenders had decreased. It is interesting that while increasing loan size is the most prominently reported means of competition in the literature, 8 and both MFIs were increasingly making individual loans above a size of about Rs 10,000, Spandana reports that in view of difficulties being experienced by borrowers, its average loan 63
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Microfinance in India A State of th
Page 6 and 7:
List of Tables Page No Table 2.1 Gr
Page 8 and 9:
Preface and Acknowledgements This r
Page 10 and 11:
Abbreviations ABC ADB BC BF CAR CAG
Page 13 and 14: CHAPTER 1 Overview and Summary of M
Page 15 and 16: Overview and Summary of Main Recomm
Page 27: Overview and Summary of Main Recomm
Page 30 and 31: 1 1a 1b 2 2a 2b 2c 3 3a 3b 3c 4 4a
Page 32 and 33: The Light and Shades Study A major
Page 34 and 35: highest proportion of weak records
Page 36 and 37: their profitability after accountin
Page 38 and 39: allow the programme to grow organic
Page 40 and 41: 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8
Page 42 and 43: Endnotes 1 It is very hard to compa
Page 44 and 45: as cash with the groups, the true r
Page 46 and 47: linkages", 11 percent 3rd, and 5 pe
Page 48 and 49: References APMAS (AP Mahila Abhivru
Page 51 and 52: CHAPTER 3 Progress Under the MFI Mo
Page 53 and 54: Progress Under the MFI Model is fun
Page 55 and 56: Table 3.4 Comparative performance i
Page 57 and 58: Progress Under the MFI Model on lit
Page 59 and 60: Progress Under the MFI Model 4 Howe
Page 61: Progress Under the MFI Model Refere
Page 66 and 67: size had actually come down during
Page 68 and 69: The point at which peer group press
Page 70 and 71: The lack of contact and communicati
Page 72 and 73: Box 4.1 Continued 4. MFIs will coll
Page 74 and 75: Endnotes 1 There will be many disag
Page 76 and 77: 19 The base suicide rate in AP is 1
Page 78 and 79: References APMAS, 2005, "A Report o
Page 80 and 81: (such as cattle and houses), and co
Page 82 and 83: The advantage of the provider model
Page 84 and 85: Some lessons learnt from experience
Page 86 and 87: Box 5.2 VimoSEWA: Synergies between
Page 88 and 89: 86 Table 5.1 Main Feature of Health
Page 90 and 91: Endnotes 1 While the microinsurance
Page 92 and 93: 16 A little less than a fifth of th
Page 94 and 95: 29 The rationale for transfer progr
Page 96 and 97: Roth, James and Vijay Athreye, 2005
Page 98 and 99: Issues and priorities for action re
Page 100 and 101: Endnotes 1 See for instance CGAP (2
Page 102 and 103: 100
Page 104 and 105: such as Chaitanya who soon became s
Page 106 and 107: money to support operational expens
Page 108 and 109: finance, and the microfinancial ski
Page 110 and 111: Box 6.1 Continued in experts and to
Page 112 and 113: Endnotes 1 In a sense it always was
Page 114 and 115:
16 Examples are Margdarshak in Luck
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114
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Table 7:1 Commercial bank exposure
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The main constraints to the expansi
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further review, RBI has modified th
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9 Thus ICICI has sold some of its b
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B. Equity Investments by the Ventur
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Figure : The Bellwether triangle Lo
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Despite the weaknesses the public s
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Box 7.1 Continued foreign sources o
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Endnotes 1 At this point they will
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References ACCION, 2003, "The Servi
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SIDBI Foundation for Micro Credit (
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categories, depending on the amount
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The distribution of total disbursem
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Endnotes 1 It should be noted that
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B. Donor Participation in Indian Mi
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this has dropped to 8% on the curre
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and poor populations. More directly
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and expansion of available retailer
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11 SDC through various programs for
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154
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1.1 Impact evaluation of Spandana's
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in the loan tenure of 24 months. Th
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There are two main motivations of a
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compensation structures used by Ind
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Endnotes 1 By Annie Duflo, Anvesha
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29 The main components of direct tr
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