Indian microlenders face crisis, warns industry group

NEW DELHI, December 12, 2010 (AFP) – India’s seven-billion-dollar microfinance industry could be thrown into crisis by a bill that seeks to regulate lending to the poor more tightly, a lobby representing the sector has warned. The sector is also under fire in neighbouring Bangladesh where the micro lending model was pioneered, with Prime Minister Sheikh Hasina accusing the industry of “sucking blood from the poor.” The legislation, slated to be taken up Tuesday by lawmakers in southern Andhra Pradesh state — hub of India’s microcredit activities — sets new rules aimed at cracking down on aggressive lending and recovery practices.

“The bill will make it impossible for microlenders to operate in the state and effectively put us out of business there,” Vijay Mahajan, head of the Microfinance Institutions Network or MFIN, said in an interview late Saturday.

Andhra Pradesh accounts for 2.5 billion dollars of microloans outstanding out of seven billion dollars nationwide, said Mahajan, whose MFIN represents 44 of India’s leading microlenders.

The microfinance sector has — until recently — been hailed as a saviour of India’s poor for providing loans averaging 250 dollars to millions of borrowers — often small en