andhra pradesh crisis

8/4/2019 Andhra Pradesh Crisis

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Andhra Pradesh CrisisAndhra Pradesh Crisis


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Microfinance in IndiaMicrofinance in India

y Microfinance is the provision of Financial Services to lowincome clients groups including consumers and the self-

employed, who traditionally lack access to banking and relatedservices.

y Indias $7 billion microfinance sector was hailed as the poormans answer to banking. Millions of impoverished Indiansshunned by mainstream banks were able to obtain small loans,

and with them the hope that they would finally be able to bolstertheir earning potential.

y But recently the worlds largest microfinance market (India hasover 25 million borrowers), it is a downward spiral. On the onehand, companies are battling a backlash from the poor who are

refusing to pay. On the other hand, the government is tighteningcontrols.


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About CrisisAbout Crisis

y Held in Guntur, Krishna Nalgonda and KrishnaDistrict in 20March2006.

y MFI Involves are Spandana, Asmita and Share.

y In 2006, there were reports that more than 30MFI-borrowers had committed suicide in Krishna

district.

y Govt. Shut 50 offices of leading MFIs.

y MFIs were charging usurious interest rates,making super-profits, and being coercive in theircollection methods.


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About CrisisAbout Crisis

y They are focus on quantity of clients, rather than quality ofclient relationships

y They are using strong-arm techniques for collections andthereby are accused of profiteering at the cost of poorwomen.

y Rapid horizontal growth and sales to pause to examine the

political and reputational risks.

y High Competency.

y MFI also blames bank & financial Institutions as beingequally responsible for the problem, as they were pumping

huge funds into some MFIs without looking into theircredentials.


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Cases in Andhra PradeshCases in Andhra Pradesh

y In one case the borrower's 16-year-old daughter "wasasked to do prostitution for repayment, She was kept

in a house under lock, under wrongful confinement,and the girl Committed suicide.

y In another case, Jayaramappa of Ananthapoordistrict, took 64,000 rupee loan from three MFIs andon Oct. 3, 2006, he "committed suicide because of

MFIs (began) harassing his wife and abusing her infilthy vulgar language, the report said.

y Another glaring example of MFIs abetting suicide forinsurance was cited in the report. Sale Ganesh ofRangareddy district, was subjected to harassment

and abetted commit suicide for getting insuranceamount, the report said.


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Clients Response to CrisisClients Response to Crisis

y Those who are willing to pay despite thesituation

y Those who want a clarification from thegovernment before making payments

y Those who are taking the opportunity todefault on repayments.

y Non-clients Perspectives of MFIs


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What Should MFIs Do?What Should MFIs Do?

y Transparency Of Interest Rates

y Transparency Of Operations And Governance

y Improved Analysis And Dissemination OfSocial Performance

y Establish a Credit Bureau?

y Move to 3rd Generation Microfinance


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Some of the Provisions of theSome of the Provisions of theAndhra PradeshAndhra Pradesh MicroFinanceMicroFinanceInstitutions Ordinance are :Institutions Ordinance are :--

y MFIs will now have to specify the area of theiroperations, the rate of interest and their system of

operation and recovery while registering with theRegistering Authority.

y The MFIs cannot seek collateral from a borrower byway of pawning or any other security and they willnow be required to display the rates of interest rates

charged by them in prominent places at their offices.

y MFIs cannot charge any other amount from theborrower except the charge prescribed in the Rulesfor submission of an application for grant of a loan.


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What Govt. Should Do?What Govt. Should Do?

y Recognise And Build On The Success

y Enforce Transparency

y Regulate ForResponsible Lending

y Use Priority Sector Lending RequirementsTo Manage Growth And EncourageOperations In Remote Areas


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What Govt. Should Do?What Govt. Should Do?

y Develop Union Level Legislation

y InterestRate Caps

y Enhance and Encourage Banking Correspondence

y Recognise, And Hold Accountable, An IndustryAssociation

y Be Open And Honest AboutThe SHG Movement


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THANK YOUTHANK YOU

andhra pradesh crisis

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