Help Microfinance, Don’t Kill It

The microfinance sector in India is in deep crisis. Last month the government of Andhra Pradesh (AP) promulgated an ordinance that retroactively waived loans where a sum of twice the principal had been repaid, required that repayment collections occur at panchayat offices, and added onerous regulation that requires registration of microfinance institutions or MFIs with district authorities who may, at any time, cancel it. Predictably, this has caused large-scale defaults by borrowers in AP, withdrawal of liquidity by banks and a severe loss in capital (SKS Microfinance, recently feted by the stockmarkets, has seen a 54 per cent drop in its share price in the last two months). Unless immediate action is taken by the Central government, the AP government, the RBI and the MFIs themselves, the viability of the entire industry could be threatened, not only in AP but throughout the country.