Vedika microfinance

vedika microfinance

OUR SPECIAL CORRESPONDENT

Mumbai, Nov. 22: Rating agency Crisil today placed 12 microfinance institutions (MFIs) on rating watch with negative implications, warning that the ordinance issued by the Andhra Pradesh government could damage their business model.

Apart from SKS Microfinance, other MFIs under rating watch are Asmitha Microfin, Bhartiya Samruddhi Finance, Digamber Capfin, Equitas Micro Finance India, Grameen Financial Services, Sanghamithra Rural Financial Services, Shri Kshetra Dharmasthala Rural Development Project, South Sundarban Janakalyan Sangha, Spandana Spoorthy Financial, Ujjivan Financial Services and Vedika Credit Capital.

The ordinance directs MFIs to increase the loan repayment period to 30 days against the earlier practice of weekly collections after reports of a large number of suicides allegedly because of strong-arm of lenders.

According to Crisil, the implementation of the ordinance has triggered a chain of events that can permanently damage the business model of MFIs. The rating agency termed the ordinance unfavourable as it

led to a drop in the collections and profitability of MFIs, particularly in Andhra Pradesh.

Funds from banks for the sector have also been severely constrained. So, the liquidity and growth prospects of many MFIs, including those operating outside Andhra Pradesh, have been affected.

According to Crisil, “Structurally, the regulatory jurisdiction and framework for MFIs remains unclear, with actions by multiple authorities increasing the challenges for the industry.

“Unless urgent steps, including regulatory intervention, are taken to address these issues, these developments have a potential to materially weaken the business and financial risk profiles of MFIs and result in rating downgrades.

“The impact on the creditworthiness of individual entities will differ depending on their exposure to Andhra, their liquidity, and their ability to raise capital from alternative sources,” Crisil said.

Another risk, the rating agency said, is that other states may follow Andhra Pradesh in introducing similar laws.

Source: www.telegraphindia.com

Category: Payday loans

Similar articles: