The End Is Nigh

In India's Economic Times:

"This is it. We have cash till the end of February or early March. If collections do not pick up by then, we will have to shut down." This doomsday scenario is prophesised by Shiv Narain, chief financial officer of Spandana Sphoorty Financial, India's second largest microfinance institution.For each of the last eight years, Spandana reported growth in excess of 100%. Yet, today, it stands pushed to the brink, by the very state that embraced it in the first place: Andhra Pradesh.

If that's the plight of India's second largest MFI, half of whose portfolio is locked in Andhra, how are smaller MFIs with an equal or larger exposure to the state doing? Even worse. They could tip over anytime. "Our money for repayment of bank loans will run out in January," says Kishore Kumar Puli, managing director, Trident Microfin, 70% of whose Rs 160 crore loan portfolio is in Andhra."I foresee nothing less than the death of the small MFI," says SC Hassain, president and CEO of Star MicroFin Service Society, whose entire Rs 20 crore loan portfolio is in the state.Judgement day is two days away. January 15 will be three months since Andhra issued the contentious 10-page ordinance. In the lending business, three months is the first threshold of failure — that's when lenders have to start making provisions for bad loans, which reduces their profits. Unless normalcy returns in Andhra, for both MFIs and banks, the signs are ominous.