SKS Microfinance slashes interest rates in Andhra Pradesh
- Thursday, October 28, 2010, 11:25
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Microfinance Focus, Oct 28, 2010: SKS Microfinance Ltd has informed BSE that the Company has decided to reduce its annualized rate of interest from existing 26.69% to 24.55%, with immediate effect in the state of Andhra Pradesh.
The company is reported to have issued full-page advertisements in vernacular dailies of Andhra Pradesh on Wednesday, announcing the reduction in its interest rates. The interest rates charged by SKS in other states will however continue to remain same.
The proposal of reducing interest rates came from the SKS a few days after an ordinance was issued by the state government of Andhra Pradesh to regulate microfinance institutions. “We are willing to reduce our rate of interest if the RBI or Finance Ministry asks us to do so. We had reduced rate of interest in the past, voluntarily. We are ready to lend at 24 per cent”, SKS Microfinance founder and executive chairman Vikram Akula had said earlier.
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When we started out in development a couple of decades ago, we instinctively targeted to reduce the influence of money lenders, if not eliminate them completely. Why? They were the traditional oppressors and exploiters in society. Micro-savings and revolving loans worked very well until the most fancied MFIs burst into the scene. MFIs operate under these two beliefs: “Having access to expensive credit is better than no credit” and “the observed rate is where demand equals supply”. These two beliefs were ironically the very same fulcrum the traditional money-lenders operate with.
The result is an “Animal Farm” situation where we are now not able to distinguish between “pigs” and “humans” and vice versa. In fact, money-lenders have got a make-over by packaging themselves as MFIs. A good example is Mohd Yunis of Grameen Bank comes from a traditional money-lending caste. And of course, he got the Nobel Prize and so did Al Gore & Pachauri. Thank God the Nobel Committee did not confer Gandhiji the same distinction, by clubbing him with these scamsters.
The IPO of SKS, one of the largest MFIs in India, saw it over-subscribed by 15 times; their Ten-Rupee share was priced at a premium of Rs 985 – showing how much the market had confidence on their profitability while “banking with the poor”. MFIs argue that they have to charge high rates to maintain profitability. Profitability, which even private banks couldn’t match! Profitability that permits SKS to pay Rs 1 crore as bonus to their just fired CEO!
And how do they attain profitability?
A month ago, SKS in the state of Andhra Pradesh was accused of a series of farmer suicides that prompted the state government to introduce new restrictions on the microfinance industry by seeking to cap lending rates and end coercive means of recovery. Last week alone, Andhra Pradesh police arrested three loan agents of SKS Microfinance and Spandana Sphoorty Financial Ltd. after borrowers complain that they were illegally pressured by the agents to repay their small loans around $1,300. For those of us in the field, this conduct of MFIs is no surprise.
MFI research puts irinterest rates between 25-30%. But my experience (and this is my 30 years in the field) put this figure several times higher. Even if we take this range which they described as the lowest in the world, the only benefit of such loans is for working capital and not capital formation. What is the kind of subsidies Rata Tata gets to produce a one lakh car? We all are aware that a mere 0.5% rise in banking rates can crash the stock market, so sensitive is their profitability linked to interest rates. Compare this with those the poor is asked to bear.
AP’s share of outstanding microfinance loans represents nearly 40% of the sector’s total portfolio, according to CRISIL. Now if MFI is all about access to the poor, we can ask the question, why the clamour to be concentrated in a state which belong to top-five in development in the country? We would have thought they would have gone to the five lying at the bottom rung of the country. But no, they avoid it like plague. It is easy to see they do this on repayment potential of states. The interests MFIs pursue are interests of self sustenance and their own growth. The poor is hardly in the radar except for rhetoric. In fact, it is on the blood and coercion of the poor, MFIs like SKS can giveaway Rs 1 crore as bonus to the CEO.
The sooner MFIs are seen as profit enterprises, the better. The longer they pretend they are pro-poor, the longer they discredit the NGO sector that gave birth to a Frankenstein. Rather than regulate MFIs, I for one will welcome the day of their demise.
Dear sir, yes you are right. But the Microfinance has helped a lot in the rural area perticularly women to build confidence with respect to money. Let us expect an ordinance and systematic regulation and monitoring by RBI / any otherso that poor will not suffer and money lending should not come back once again.
Its the blatent blunder committed by the political bigwigs who always wanted to take their political share and hide in their swiss bank secret accounts.They are not human beings and they are just greedy for blood of poor people of India. For people there is no option they have to elect them. India is agricultural based country. 70 % of its population lives in 6 lakhs villages, food, milk,cloth,leather,fish,vegetables all should come from the villages, out of the hard work of poorest of the poor. The banks and chairmen or in cities, they do not think how food being produced. These political bigwigs told by the world bank consultants, “why do not you use NGOs to distribute micro loans to needy.Then this selfish politicians made a policy to channelize government bank loans through NGOs from back door to their swiss bank accounts, they lured some business men to register NGOs to involve in the Micro credit social work thus to sustain the social initiative. Purposely they lured some selfish business men of India, they became loan sharks ,not sharks but loan whales.The government money from Banks for less interest rate thus 9000 crores or double the amount, 85% of it is from government banks, banks give for less interest for this social work and they charge 30% interest rate to poors in Andhra Pradesh. Still A.P Government supporting those business Mircrofinance tycoons and safe guarding their business interest and again allowing loan sharks to collect the debts from the suicide spouses and family.
The Supreme court should punish the government and the Banks by questioning ” why the same loan directly not given to the needy in Andhra Pradsh?” Supreme court should punish all the people who involved in this policy making.Its a deliberate known biggest financial fraud.Some Advocate should file a public interest litigation against this.Its a scam.
http://www.jaagore.com/blog/j-s-parthiban-bank-manager-differenceease
Please see this Indian Bank , a government bank manager, how he is going to the needy and how nicely he is convincing needy to get loans for livelihood projects, and involving in community development.Please take few minutes to view this video.
If all the villagers vacated the villages,farms,they died, what we will eat ,who will produce food for us. We have to eat only cement in India. We have to eat only the ore being dug out of open cast mines .At the other side sand mafia is digging sand indiscriminately from the river beds, of all the rivers. Media is not at all giving importance to this.Where out India is heading?