India’s Microfinance Industry Puts Crisis Behind It, Thanks to Regulations, Diligent Borrowers
The aroma of flaming gingelly oil wafted through the air as 16 women employees of Thrissurbased Global Chips & Foods braced themselves for another long day at work. A black wooden board, hung on a recently white-washed wall, listed out their day’s chores: 20 kilograms of tapioca chips and 20 kgs potato chips.
The women — wearing maroon uniforms and white head-caps — were all raring to go. Their “company” had just secured orders from over a dozen supermarket chains, apart from countless retail outlets across Kerala and a few buyers from the Gulf and even Thailand. Microfinance industry is out of an unprecedent crisis, thanks to regulations, diligent borrowers Global Chips, started with an initial loan of Rs 5,000 from ESAF Microfinance nine years ago, logs a monthly production of 65,000 packets (of fries), sales turnover worth Rs 3 lakh and profit of around Rs 70,000. “Microfinance helped me build my company.
It provided me with money whenever I wanted it,” says 44-year-old Sindhu Sethumadhavan, the proprietor of Global Chips, who pays Rs 1,410 every week on her outstanding microfinance loan of Rs 1.5 lakh. Sethumadhavan is part of a growing tribe of small entrepreneurs whose businesses were seeded by microfinance. This clan had shrunk in the wake of the Andhra Pradesh (AP) microfinance crisis of 2009-10, triggered by a series of borrower suicides, allegedly on account of unscrupulous MFI (microfinance institutions) practices of charging high interest rates and excessive lending, leading to increased indebtedness among poor borrowers, and turning to coercion to recover those loans.
The industry itself took some hard knocks. Asset under management (outstanding loans or gross loan portfolio) fell Rs 3,000 crore to close at Rs 20,500 crore in 2011-12. MFIs that had large-scale operations in AP suffered the most. Non-repayment of loans by borrowers (at the behest of politicians and other community leaders) resulted in AP portfolios of most MFIs declining by 35%.