Ramesh S Arunachalam
Rural Finance Practitioner
Please recall that as per the AP governments ordinance, MFIs were required to provide calculations on their effective interest rates to their borrowers and file this information with the Government of Andhra Pradesh (GoAP). It was during that time that news items appeared where several of the media did report that the GoAP had reportedly said that MFIs were INDEED charging high effective rates from micro-finance borrowers. Several MFIs refuted the same and a little after this, this writer requested APMAS (a credible national MF support organization headquartered in AP) for its data on effective interest rates, that had been mentioned in various quarters, including the media. APMAS had apparently conducted the study in 8 clusters in Andhra Pradesh in April 2010 as per details given later. In response to the writer’s request, APMAS sent the study to the writer via e mail[i].
As per sheet titled MFI loan consolidation, in the file attached[ii] to APAMS e mail, the following were the details of the study and in this first part, we look at evidence from the study for multiple borrowing. In the 2nd part, we look the aspect of effective interest rates and that will be posted separately.
STUDY DETAILS:
A) The study was carried out in 8 Clusters and The Name of Clusters, as Mentioned in the APMAS Sheet were:
KamareddyCluster - Kamareddy mandal (DurgaBhavani SHG of Sarampalli Village), Parigi Cluster - Sulthanpur Village, LBNagar, Aluru Cluster - Aluru Mandal, Gunthakal Cluster - Uravakonda Mandal, ODC Cluster - Nallacheruvu Mandal, Piler Cluster - Rompicharla Mandal and Kamareddy Cluster - Domakonda Mandal (Janagama, Muthyampet villages)
B) Total Number of Members as given in the MAIN[iii] MFI Loan Consolidation APMAS Sheet.
There were 53 Members and they had taken 70 loans (1.32 loans per member) in all
C) Total Loan Amount
The Total Loan Amount (as Mentioned in the APMAS Sheet) to all 53 members in 70 loans was
Rs. 936, 000
D) The following 12 members appear to have had 28 Loans totaling Rs 402,000, as Mentioned in the APMAS Sheet and the details[iv] are given below:
1. Hameeda, Rs.40000/- (4 Loans from BASIX, Sharemola, SKS and Spandana) – She had to make loan repayments of Rs 3700 for the 4 loans every month - 3 of these are weekly payments spread over a Loan Term of 50 weeks and 1 is a monthly payment spread over a Loan Term of 11 months. The charges and other fees collected are being analysed in the next post on effective interest rates.
2. Shyamala, Rs.30000/- (3 Loans from Sharemola, SKS and Spandana) - She had to make loan repayments of Rs 2700 for the 3 loans every month – all 3 of these are weekly payments spread over a Loan Term of 50 weeks
3. G. Padmamma, Rs.24000/- (2 Loans from Asmitha Microfin Ltd. And Spandana Spurthi Financial Ltd.) - She had to make loan repayments of Rs 2160 for the 2 loans every month – both of these are weekly payments spread over a Loan Term of 50 weeks
4. P.Nagamani, Rs. 24000/- (2 Loans from Maxwell and Asmitha) - She had to make loan repayments of Rs 2160 for the 2 loans every month – both of these are weekly payments spread over a Loan Term of 50 weeks
5. Vanajamma, Rs.52000/- (3 Loans from BASIX, Sharemola and Spandana) - She had to make loan repayments of Rs 4800 for the 3 loans every month - 2 of these are weekly payments spread over a Loan Term of 50 weeks and 1 is a monthly payment spread over a Loan Term of 15 months.
6. Jamrtuth, Rs.40000/- (2 Loans from Future Finance and Share Mola) - She had to make loan repayments of Rs 3700 for the 2 loans every month - 1 of these is a weekly payment spread over a Loan Term of 50 weeks and 1 is a monthly payment spread over a Loan Term of 12 months.
7. Dilshad, Rs.40000/- (2 Loans from Future Finance and Share Mola) - She had to make loan repayments of Rs 3700 for the 2 loans every month - - 1 of these is a weekly payment spread over a Loan Term of 50 weeks and 1 is a monthly payment spread over a Loan Term of 12 months.
8. Beebeejan, Rs.40000/- (2 Loans from Future Finance and Spandana) - She had to make loan repayments of Rs 3700 for the 2 loans every month - - 1 of these is a weekly payment spread over a Loan Term of 50 weeks and 1 is a monthly payment spread over a Loan Term of 12 months.
9. Ammaji, Rs.37000/- (2 Loans from Future Finance and Share Mola) - She had to make loan repayments of Rs 3450 for the 2 loans every month - - 1 of these is a weekly payment spread over a Loan Term of 50 weeks and 1 is a monthly payment spread over a Loan Term of 12 months.
10. Naseeba, Rs.30000/- (2 Loans from Spandana) - She had to make loan repayments of Rs 2700 for the 2 loans every month – both are weekly payments spread over a 50 week loan term
11. Laxmi, Rs.22000/- (2 Loans from Share Microfin and SKS) – She had to make loan repayments of Rs 1980 for the 2 loans every month - both are weekly payments spread over a 50 week loan term
12. S.Yadamma, Rs.23000/- (2 Loans from Spandana and SKS) - She had to make loan repayments of Rs 2060 for the 2 loans every month - both are weekly payments spread over a 50 week loan term
The above details are summarized in Table below:
E) The Total Loan Amount, of 12 Borrowers with (28) apparent Multiple Loans, as mentioned in the APMAS Sheet, is Rs.402,000
ð This constitutes almost 42% of the ‘sample’ loans in terms of total loan amount of Rs.936,000
ð In terms of number of loans, this constitutes, almost 40% of the number of loans (28 out of 70).
ð It must be noted that both of these are rather significant…
ð The average number of loans for the 12 borrowers is 2.33 loans per borrower, much higher than the all sample average of 1.32 loans per member
F) The MFIs Who Had Lent Money to all the 53 members, as mentioned in the APMAS Sheet are:
ð Asmitha
ð Basix
ð Dove
ð Future Finance
ð L&T Finance Ltd.
ð Maxwell
ð Share Microfin
ð Share Mola
ð SKS
ð Spandana
The break up of institutions for the 28 (apparent multiple lending) loans given to 12 borrowers is as follows
ð Asmitha, (2 Loans)
ð Share Mola, (6 Loans)
ð Share Microfin, (2 Loans)
ð SKS, (4 Loans)
ð Spandana, (7 Loans)
ð BASIX, (2 Loans)
ð Future Finance, (4 Loans)
ð Maxwell, 1 Loan)
Thus, as per the APMAS study (MFI Loan Consolidation Sheet), it appears that there is significant multiple borrowing and again, the trends from the study {if an accurate representation of (widespread) ground reality} reinforce other available data on multiple borrowing (Study by Prof Rajalaxmi and Prof Srinivasan, 2009; Study by CMF and sponsored by BIRD, 2010; several other studies in Kolar and reports in Media).
In summary, the results of the above study, certainly reinforce the call for an objective and rigorous study - by the RBI and/or other regulators - on extent to which multiple loans have been actually provided by MFIs to clients on the ground in AP and other parts of India… This is an issue that is certainly worthy of further research and gauging its spread across the Indian micro-finance industry is going to be very critical to solving the present micro-finance crisis. We also need to ascertain whether the so-called phenomenal growth story of Indian micro-finance in years 2005/6 – 2009, is indeed one of multiple borrowing, shared JLGs and shared clients. As Indians and stakeholders in micro-finance, it is imperative that we understand this… and it is our right to do so…
And while doing the suggested research, the RBI may want to also look at questions such as the following:
ð The above 28 loans apparently lent to 12 borrowers constitute 42% of the total loan amount of Rs 936000 and account for 40% of the total 70 loans, both of which are quite significant numbers (from a sample perspective). This being the case, it would be useful to know how these loans are they accounted for with regard to priority sector lending, by the MFIs concerned and the associated banks? It would be interesting to know whether there any (legal and /or other procedural) violations here?
ð What is the role of the MFIs/Commercial Banks in all of this and how much are they (each) responsible for this kind of a situation? Why did this occur in the first place?
ð What are the implications for banks reporting under extant priority sector norms? Given the present situation, should MFIs be eligible for such priority sector lending? What are the implications for the (draft?) V K Sharma Committee report on priority sector lending in India?
ð What are the implications for NATIONAL (Country) outreach data on access to financial services (loans) and what is the consequent impact with regard to financial inclusion and MDG targets in India?
ð How can such happenings be prevented in the future?
ð Given that this has happened and is happening right under the present so-called self-regulatory framework (like MFIN’s and Sa-Dhan’s Codes of Conduct), will self-regulation work in Micro-Finance? Is it a good idea in the first place?
ð Or Should RBI, as this writer has been saying, time and again, like a broken record, completely take over Micro-Finance?
[i] Copy of e mail is available with attachment and can be shared, if required and appropriate, after takeing necessary permissions from APMAS
[ii] File was named, MFI Loan Consolidation Rev and was apparently created 24th April 2010.
[iii] There was a 2nd sheet with a fewer number of loans with the name MFI Loan consolidation 2 and that was not used as it appeared to be a copy sheet created for various analysis.
[iv] The charges and other fees collected for these loans are being analysed in the next post on effective interest rates. Hence, they are not mentioned here.
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