SKS Microfinance has filed a clarification with the National Stock Exchange(NSE) detailing it’s future course of action and it’s views on the Andhra Pradesh Government’s Ordinance for Microfinance Institutions.
SKS Microfinance has made the following observations and statements in it’s filing with the NSE.
- SKS Microfinance intends to seek legal clarification as to whether the ordinance will apply to NBFC microfinance institutions (MFIs) as SKS Microfinance is not an NBFC as defined under Sec 58 A of the RBI Act 1934 as outlined in the ordinance.
- MFIN – the apex body of MFI NBFC’s in India plans to move a stay petition against the ordinance.
- This ordinance does not have an interest rate ceiling on MFI loans except a mention that “No MFI shall recover from the borrower towards interest… an amount in excess of the principal amount.” This works out to a flat interest rate of 100% compared to our flat rate of 12.5% with 1% upfront interest (26.7 % effective on a de clining balance). So the provision is unlikely to have any adverse impact on our interest rate structure.
- SKS Microfinance welcomes those provisions of the ordinance which prohibit harsh recovery practices.
- Provisions related to harsh recovery practices are likely to impact only those MFIs which
- Incentivise field officers for collection
- Penalise field officers for shortfall in collections.
- Pay commissions to Centre or Group leaders for collections
- Deploy commission/ collection /recovery agents
- Since inception 13 years ago, SKS has never (during 8 years as an NGO and 5 years as an NBFC) had any of the aforementioned policies.
- SKS Microfinance has consciously diversified beyond A.P. and has operations in 19 states. A.P. contributes to 28% of the current loan portfolio.
- SKS Microfinance is fully equipped to meet the various data requirements called for by the ordinance as it holds all its member data (7.3 million as of June 30, 2010) in digitized form. SKS Microfinance also holds Know Your Customer (KYC) documents of every single borrower. As of now, there has been no material adverse impact on any of our field related and customer interface operations such as village centre meetings, barring extra-legal disturbances in 2 of our 559 branch offices in Andhra Pradesh. As per our operating model, all credit related processes and member interface take place only at the village centres in the open and not in the branches. Branch offices have only back office operations.