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MFIs ratings now under scanner
MUMBAI: Alarmed by the recent developments relating to microfinance institutions (MFIs), ratings major Crisil has placed the ratings of 12 MFIs on watch list and has indicated that there could be downgrades.
Crisil has put these 12 MFIs on ‘rating watch with negative implications’, a release from the company said. Six of these MFIs have ratings that are in the ‘BB’ category or below, the release added. Speaking to TOI, Roopa Kudva, MD & CEO, Crisil said that the recent Andhra Pradesh government ordinance has triggered a chain of events that can have a long lasting impact on the MFI sector if not addressed quickly.
“MFIs have been choked from both sides. On the one hand, collections are down to about 20% from a high of about 99% a few months ago. Also, under the changed circumstances banks are not giving loans to MFIs, so the funding is also constrained,” Kudva pointed out. “But given the situation at the ground level, there is very little time to lose,” she added.
The implementation of the AP government ordinance, and similar moves in other states, can permanently damage the business models of MFIs, by impairing their growth, asset quality, profitability, and capital-raising ability. In turn, with the decline of the sector, the flow of credit to the under-served rural poor could also be seriously affected, market players feel.
At present, according to different estimates, the total MFI portfolio in the country is worth between 25,000 crore and 30,000 crore. And MFIs have made taking loans accessible to about 2.8 crore rural poor, who otherwise only had the traditional moneylenders to look up to.
Of late other than the AP government ordinance, two other states—Orissa and West Bengal—are also contemplating moving in the same direction to keep a check on the business of the MFIs.
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