SKS Micro pins hope on Malegam Committee for relief

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SKS Micro pins hope on Malegam Committee for relief

The microfinance industry has seen some key changes after the MFI act has been implemented in Andhra Pradesh. In an interview with CNBC-TV18, Vikram Akula, Founder of SKS Finance gives a status check on the key changes.

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Excerpts from India Business Hour on CNBC-TV18 Watch the full show » ALSO READ See latest News about SKS Microfin See previous management interviews See what other Experts & Brokerages are saying about SKS Microfin SKS Microfin BSE | NSE 29/05/12 Are Mutual Funds betting on SKS Microfin?

The microfinance industry has seen some key changes after the MFI Act was  implemented in Andhra Pradesh.

In an interview with CNBC-TV18, Vikram Akula, founder of SKS Microfinance gives a status check on the industry and the road ahead.

Below is the verbatim transcript of the interview. Also watch the accompanying video.

Q: MFI institutions are now lending to men as well. The foundation so far has been based on the model on being able to lend to women. Is SKS doing this as well? Will this be a fast emerging trend?

A: We are not lending to men at all. Some MFIs are trying to comply with the letter of AP Micro Finance Act and still be able to lend to poor households. Initially, the act didn't cover men explicitly and that's why some of them looked at lending to men.

The government has subsequently sent a notification saying men are included as well, it's about poor households. Basically, they plugged that loophole. It's not that people are trying to subvert the act, but rather people are in a desperate need for access to finance.

The micro finance Institutions in Andhra Pradesh had given out over Rs 5000 crore before the act and have given out only Rs 8.9 crore in the last five months. That means there is a huge number of poor households who don't have access to finance. All of us are trying to figure out a way to lend to them as they are suffering tremendously.

We hope, with the Malegam Committee Recommendations, the act will change and we will be able to lend. Right now, we are trying to figure out a way forward until that happens.

Q: What we are also picking up is that MFIs are now looking out of the self-help group route and lending to individual clients who are not part of the self-help group. Is that something that has also now been stopped? Was this one of the loopholes that's also been plugged?

A: Similar to the impetus to look to lend to the men as way of reaching the household, another provision of the act initially was that it was restricted to only government self help group members. We read that to mean that we could lend to those who are not in self-help groups.

The government has since clarified that they were talking about all BPL households, whether in government self-help programs or not. The spirit of the act is to ensure that there is prior permission before a loan is given out.

While we understand the intention and spirit of the state government trying to do, we really think that it's become very onerous and has hurt the same poor people by denying them finance that they were initially trying to help.

Q: You mentioned that the lending amount has come down from over Rs 5000 crore to about Rs 8.4 crore in the last five months. The loan approval process is pretty cumbersome. What is the pipeline looking like in terms of approvals that you are working with at SKS?

A: Yes, it's a tremendous struggle. The act requires us to take prior permission for every single loan that we give. In normal course, SKS would have given out Rs 10 lakh loans and almost Rs 1000 crore in the last five months.

We have been able to submit 75,000 applications as it is a very onerous process. There are 21 different fields and a number of documents. Out of those 75,000 that we have submitted only 1600 have been approved. For a population of some 2.2 million customers in Andhra Pradesh, we have given out 1600 loans only.

The tragedy is that today those borrowers are going to money lenders, pawning their gold and jewellery, and having to sell off their assets. We are very hopeful that the Malegam Committee will find a resolution to the AP situation.