NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, September 4, 2012

The Andhra Pradesh crackdown on microfinance companies has driven an increasing number of poor borrowers in the State back into the arms of local moneylenders, a recent survey shows.

This is despite the higher interest rates charged by these lenders and the loan often not covering the full requirement. But with microfinance institutions (MFIs) abstaining from new loans in the State ever since the Microfinance Institutions (Regulation of Money Lending) Ordinance in October 2010 was introduced, there seems to be no other option.

A new study by financial services solutions provider MicroSave found that 59 per cent of the people surveyed in group sessions in Telangana, Rayalaseema and Coastal Andhra covering a total of four districts said they have taken loans from moneylenders in the absence of loans from MFIs.

Moneylenders have increased lending in the past eight to 10 months in areas with higher penetration of MFIs, according to the study. Furthermore, 37 per cent of the respondents had taken loans from self-help groups (SHGs) and 29 per cent from “daily finance corporations”, another form of moneylenders.