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Home Blogs Loans disbursed by Andhra Microfinance without sound assessment

Loans disbursed by Andhra Microfinance without sound assessment

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K C Chakrabarty, Deputy Governor of Reserve Bank of India (RBI), while addressing Visa-Financial Times conference on financial literacy said that Microfinance companies in Andhra Pradesh failed to assess the credit needs and repayment capacity of borrowers. This statement has brought forward a new dimension to the crisis and failure of microfinance industry in AP. However, he believed that the changes in the law quadrupled the issue.
 
At one point, Andhra Pradesh contributed 40 per cent of the total portfolio of microfinance business in the country but following the passage of The Andhra Pradesh Microfinance Institutions (Regulation of Moneylending) Act, 2010, nearly all microfinance activity in the state has come to a halt.
 
Many microfinance institutions were forced to shut down due to non recovery of loan amount. These companies had to write off nearly all their loans after the law imposed caps on loan rate, had to put a halt on multiple loan practices, and curbed recoveries. Moreover, the new law encouraged self-help group for direct lending. The recovery levels in the state fell to below 10 per cent from a high of 98 per cent before the Act was enacted.
 
However, the government has recently initiated some positive steps to help the microfinance sector get back on it feet. In May, the Union government, introduced a microfinance Bill in Parliament, aimed at bringing uniformity in regulations across the country and also bring these institutions under the supervision of RBI.
RBI has also approved most recommendations of the Y Malegam committee on microfinance that sought to streamline the working of microfinance institutions and also bring out uniformity in their regulatory treatment.
 

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