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20120313 infographic   indian microfinance
 

20120313 infographic indian microfinance

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An infographic from Legatum attempts to capture the seen and unseen impact of the AP legislation on microfinance.

An infographic from Legatum attempts to capture the seen and unseen impact of the AP legislation on microfinance.

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    20120313 infographic   indian microfinance 20120313 infographic indian microfinance Presentation Transcript

    • © 2012 Legatum Limited. www.legatum.comfocus on:indian microfinanceLooking Beyond the AP Act and its Devastating Impact on the PoorIn December 2010 the Government of Andhra Pradesh passed a law 42% of the Indian 13 in people in India have $ 5.3BN the size of the(the “AP Act”) which effectively shut down private sector microfinance population exists on no access to formal private microfinancein the State. The AP Government stated that its goal was to protect the less than $1.25 (H62) financial services sector in March 2011poor. Now, 15 months later, the impact of the AP Act is clear: rather than per day was H26,255 Cr.protecting the poor in AP, it has had the opposite effect and indeed harmedthe poor by starving them of access to credit and basic financial services.a brief history of the indian microfinance industry1974 1980s 2005 2008 to 2010 July 2010The Self Employed Women’s The microfinance sector The Krishna District crisis Private sector MFIs grow to SKS IPO raises H1,600 Cr.Association formed an urban went on to evolve around the followed unfounded allegations meet the needs of the poor: (USD 320MM)cooperative bank, called the concept of Self Help Groups against some MFIs and the Gross loan portfolios +80% p.a. October 2010 December 2010 May 2011 March 2012Shri Mahila SEWA Sahakari (SHGs), informal bodies that shutting down of branches; Client base +64% p.a. Andhra Pradesh MicroFinance Microfinance legislation Legatum issued a white paper The Microfinance Bill to beBank, to provide banking would provide their clients repayments dried up and Institutions (regulation of (the AP Act) passed – A Crisis at the Bottom of the debated by Indian Parliamentservices to poor women with much-needed savings and the sector took two years to money lending) Ordinance, by the Government of Pyramid – which challenged offers some new hope for theemployed in Gujarat. credit services. recover. 2010 is issued Andhra Pradesh the premise of the AP Act Indian microfinance industry1974 1980s 2005 2008 2010 2011 2012facts&figures estimated interest rates the ap act crisis but... 9.2 2008 to 2010 Comparative Growth p.a. By denying access to 150%The top five private sector Private MFIs vs. SHGs microfinance, the AP Act 2010 The Bill’s proposed 7,494CR MMMFIs reach more than exposes India’s poor to 26% interest rate cap20MM the exorbitant interest takes no account of rates of unregulated village the fluctuation in bank 80% lending rates which moneylenders In the year before the AP Act was have recently risenclients in nearly every passed, MFIs disbursed USD 1.5BN from 12% to 14-16%state of India. to more than ten million households 26% 30% 28% in Andhra Pradesh indian village MFIs SHGs 2011 women now form the 26% ZERO MFIs credit cards moneylenders gross loan portfolio private mfis critical largest bloc of blacklisted interest rate cap to financial inclusion borrowers in the world 64% Since the AP Act, the disbursements thanks to the AP Act rural banks 14-16% cost of funds have dropped to almost zero. 31.7MM 7-9% operating expenses regional 90% micro-accounts 1-3% profit andhra pradesh held by Is this a sustainable private sector A mere I472 Cr. corporate banks (USD 94MM) in equity business model? MFI clients 13.6% 10m MFIs SHGs L6395 cr capital has been invested in the Indian microfinance The requirement client base growth sector since the AP Act for capital adequacy The microfinance sector is a critical By March 31 2011, the loan of 15% will severely was passed, down from 45% portfolio and clients grew at stress MFIs with large30% part of India’s economy. When of loan portfolios in AP will likely be I2,600 Cr. (USD 520MM) exposure in AP. included in the mainstream financial a reduced rate of 19% over written off amounting to I4,919 Cr. in Mar-Oct 2010 alone. system, the sector has a 45% share the previous year (driven by (USD 984MM) to I6,395 Cr. Limiting loans to of all microcredit accounts nationally. good growth until October (USD 1.3BN), or between 19 to 24% equity capital investment households with 2010 and then stagnant after of the industry’s entire portfolio inof all MFI loans across Adding in SHGs, the total number of less than H60kIndia are in the state of microcredit accounts is around the crisis) to H26,255 cr (USD FY 2011. DOWN income encourages 82% 5.3Bn) in portfolio and 31.7 134MM Repayment rates in AP plummeted misrepresentationAndhra Pradesh (AP) million clients from almost 100% to 5% following since loan recipients may find themselves the AP Act. suddenly excluded