MUMBAI: More than two years after theAndhra Pradesh government put the squeeze on micro-finance institutions in an effort to curb their usurious practices, investors are beginning to return to the sector.
Even as lenders battle over the controversial laws by the state government, ten investors, domestic as well as foreign, have invested $158 million (approximately Rs 869 crore at current value) in FY13.
Chennai-based Equitas received the highest - $53 million - equity investment by multilateral lender IFC, and Caspian investors. IFC also invested in Suryoday and Ujjivan during the year. The investors include financial institutions and private equityplayers, among others.
Significantly, these investments come at a time when returns are regulated and no longer earn huge margins the way these did before 2010. Lenders can now earn 10-12 percentage points above their own borrowing costs. This means that interest rates could range between 23% and 27%. Before the 2010 crisis, some lenders charged up to 40%, a little lower than local moneylenders.
The industry has also changed its approach towards business. "At the industry level, we have diligently created discipline among borrowers. Lenders are using credit bureaus to avoid multiple lending," said Manoj Nambiar, managing director of Kolkata-based Arohan Financial Services. Credit bureaus have 90 million credit records, which capture about 80% of the borrowers. "The industry has also invested in technology to reduce costs," he said.
The crisis in Andhra came to a head when the usurious lending and coercive recovery practices by MFIs invited the attention of regulators after which RBI came out with lending norms. The crisis of confidence also saw the industry upgrading its code of conduct. "The setting up of a separate category NBFC-MFIs & the RBI regulations has brought in a lot of regulatory clarity and through dialogue it continues to improve," said Samit Ghosh, who heads Ujjivan Financial Services in Bengaluru.