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Spate of Suicides and the possible

crash of MFIs in Andhra Pradesh.
Burning issues of MFI sector
T. Balasubramanian
Mudhal Inclusive Growth India Foundation

If a 23-year-old Amjed hanged himself to death after he was unable to repay on time the weekly
installment of Rs. 570 on the Rs. 24,000 loan that his wife Kauser took from a microfinance
institution, there are two questions arises what kind of harassments would have induced him to
make such a choice of giving his life for Rs.570/- If the death is because of the harassment then
its highly dangerous for the sector, on which the eyes of the investors are in focus, more
specifically the social investors. The second question is whether the reason is genuine when the
borrower is a women why his husband hang himself? That too even for such a very small
amount. These questions will arise in every one who looks the issue in a rationale.

There are two possibilities one the possibility of harassment to the extreme and the second the
death which caused for some other reason linked to the microfinance debt to make the MFIs as a
scapegoat for political reasons, such as Telungana issue on one side and Mr. YSR Jagan’s yathra
on the other side. Whether is it an attempt to turn the focus of the media in an issue away from
the political issues at the same time getting leverage of the situation to their advantages.

On the other side although MFIs have come into existence as a financial intermediary for the
poor, some of them have actually made the poor to further impoverishment by adopting unethical
practices, resorting to multiple lending without due diligence, usurious interest rates and coercive
methods in collecting the repayments from the borrowers.

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T. Balasubramanian
The Andhra Pradesh government believes over 20 such suicide deaths reported in the last few
months are fallout of high interest rates and coercive methods of recovery followed by
microfinance institutions lending to women self-help groups. Seventeen of those whose names
appear in the list of suicide deaths had borrowed from SKS. Word of caution here is - they are
not necessarily did that because of the coercive method adopt by SKS, it may be for some other
reason or by some other MFI who lend to the same clients of SKS and vice versa.

Where as Mr. Akula denies that statement and said that in those suicides there were no defaults
or loan arrears. There may be other complicated issues for these suicides which has to be
investigated on case-by-case basis. As per his statement even police have cleared that they are
not involved in that.

Everybody agreeing that their interest rate is above 26% but the AP Govt claims that the
effective rate being charged by AP MFIs are ranging from 36% to 54%, one can not totally
disagree with this, considering the potentials there are possibilities that some black sheeps
intrude in to the crowd of good MFIs, which are making money out of the poor adapting all
undue practices. Because of such MFIs the entire sector is getting affected.

Most of us of the opinion that the ordinance drafted in a hurry, I differ from that because there
were proposal in the earlier occasions, it might have been drafted during that time itself, they
were awaiting for a right timing for introducing such Ordinance.

It’s very much apparent that there are several ambiguity between the Govt., and the regulators
and there is no one to support the MFI sector from either side at this moment.


RBI says : The RBI had already told us that regulating microfinance institutions are not
completely in its purview and that states will have to deal with rogue elements using the
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T. Balasubramanian
appropriate laws, state governments are best agencies to regulate coercive interest rates. RBI had
earlier advised the state to regulate microfinance institutions under the state money-lending laws.

Ministry of finance advised the AP Govt not to regulate the interest rates charged by MFIs

Mr Subbarao said, “RBI has no control over interest rates being charged by MFIs as they are
regulated by same set of rules as non-banking financial companies,”

The government of Andhra Pradesh claims that it was forced to introduce this bill to check the
rising unrest in the state of Andhra Pradesh after media reports of MFI’s alleged coercive
practices led to public outcry and backlash.

Speaking to CNBC- TV 18, Mr Vatti Vasantha Kumar, Minister for Rural Development of
Andhra Pradesh said “ The interest rate declared by the MFIs is different from the actual and
indirect rate that includes hidden charges. If you take the hidden charges into consideration, the
interest rate ranges from 50% to 84%.”

The Ordinance now makes it mandatory for all Microfinance Institutions in Andhra Pradesh to
register with the district Registering Authority, the Project Director (PD) of District Rural
Development Agency (DRDA) for rural areas and PD of MEMPA for urban areas, within 30
days starting from the date of its introduction. Without registration no MFIs can do Microfinance
business in AP. This means, that the MFIs should not collect the loan repayment without
registration. If any one collects a repayment, then it will be treated as violation of ordinance and
the state can take action against such MFIs? Further the MFIs cannot make any further lending
without registration. When there is no time frame for issuing the registration certificate it
becomes the mercy of the officials either to issue registration or ask some document for further
clarifications and adopt delay tactics. There are possibilities of large scale corruptions.

Furthermore it’s not clear whether each and every federations have to get it registered separately.
If that is the case every institutions has to deal with several number of officiers. Beyond all these
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T. Balasubramanian
there is monthly reporting wherein every MFI before 10 of every month have to furnish a
statement about the borrowers the amount lend to them, the interest charged and the amount of
repayment received during the previous month. For example if an MFI is having 1 million
borrowers then every month a state of such one million borrowers with the above mentioned
details have to be submitted physically. Imagine from now onwards all the resources have to be
utilized to prepare such statement get it printed carry it to the offices and submit to them, my
doubt is whether there is space for storing these reports in every offices, whether such borers
details are used confidently, which are of big questions. Like this there are several ambiguity in
each and every line of the ordinance. If this situation continues for 6 months the MFIs from AP
have to shut the doors, and the stake is as high as above Rs.5000 cr.

Nothing is going to save the sector unless an immediate rescue measure has to be initiated.

T. Balasubramanian


Mudhal Inclusive Growth India Foundation

Mudhal Inclusive Growth India Foundation

T. Balasubramanian