An infographic from Legatum attempts to capture the seen and unseen impact of the AP legislation on microfinance.

1. © 2012 Legatum Limited. www.legatum.com
focus on:
indian microfinance
Looking Beyond the AP Act and its Devastating Impact on the Poor
In December 2010 the Government of Andhra Pradesh passed a law
42%
of the Indian
13 in
people in India have
$ 5.3BN
the size of the
(the “AP Act”) which effectively shut down private sector microfinance population exists on no access to formal private microfinance
in the State. The AP Government stated that its goal was to protect the less than $1.25 (H62) financial services sector in March 2011
poor. Now, 15 months later, the impact of the AP Act is clear: rather than per day was H26,255 Cr.
protecting the poor in AP, it has had the opposite effect and indeed harmed
the poor by starving them of access to credit and basic financial services.
a brief history of the indian microfinance industry
1974 1980s 2005 2008 to 2010 July 2010
The Self Employed Women’s The microfinance sector The Krishna District crisis Private sector MFIs grow to SKS IPO raises H1,600 Cr.
Association formed an urban went on to evolve around the followed unfounded allegations meet the needs of the poor: (USD 320MM)
cooperative bank, called the concept of Self Help Groups against some MFIs and the Gross loan portfolios +80% p.a. October 2010 December 2010 May 2011 March 2012
Shri Mahila SEWA Sahakari (SHGs), informal bodies that shutting down of branches; Client base +64% p.a. Andhra Pradesh MicroFinance Microfinance legislation Legatum issued a white paper The Microfinance Bill to be
Bank, to provide banking would provide their clients repayments dried up and Institutions (regulation of (the AP Act) passed – A Crisis at the Bottom of the debated by Indian Parliament
services to poor women with much-needed savings and the sector took two years to money lending) Ordinance, by the Government of Pyramid – which challenged offers some new hope for the
employed in Gujarat. credit services. recover. 2010 is issued Andhra Pradesh the premise of the AP Act Indian microfinance industry
1974 1980s 2005 2008 2010 2011 2012
facts&figures estimated interest rates the ap act crisis but...
9.2
2008 to 2010
Comparative Growth p.a.
By denying access to 150%
The top five private sector Private MFIs vs. SHGs
microfinance, the AP Act 2010 The Bill’s proposed
7,494CR MM
MFIs reach more than exposes India’s poor to 26% interest rate cap
20MM
the exorbitant interest takes no account of
rates of unregulated village the fluctuation in bank
80% lending rates which
moneylenders In the year before the AP Act was have recently risen
clients in nearly every passed, MFIs disbursed USD 1.5BN from 12% to 14-16%
state of India. to more than ten million households
26% 30%
28% in Andhra Pradesh
indian village MFIs SHGs
2011 women now form the 26%
ZERO
MFIs credit cards moneylenders gross loan portfolio
private mfis critical largest bloc of blacklisted interest
rate cap
to financial inclusion
borrowers in the world
64% Since the AP Act, the disbursements
thanks to the AP Act
rural banks
14-16% cost of funds
have dropped to almost zero.
31.7MM
7-9% operating expenses
regional
90%
micro-accounts 1-3% profit
andhra pradesh held by Is this a sustainable
private sector A mere I472 Cr.
corporate banks (USD 94MM) in equity business model?
MFI clients 13.6%
10m MFIs SHGs L6395 cr capital has been invested
in the Indian microfinance The requirement
client base growth
sector since the AP Act for capital adequacy
The microfinance sector is a critical By March 31 2011, the loan of 15% will severely
was passed, down from
45%
portfolio and clients grew at stress MFIs with large
30%
part of India’s economy. When of loan portfolios in AP will likely be I2,600 Cr. (USD 520MM)
exposure in AP.
included in the mainstream financial a reduced rate of 19% over written off amounting to I4,919 Cr. in Mar-Oct 2010 alone.
system, the sector has a 45% share the previous year (driven by (USD 984MM) to I6,395 Cr. Limiting loans to
of all microcredit accounts nationally. good growth until October (USD 1.3BN), or between 19 to 24% equity capital
investment households with
2010 and then stagnant after of the industry’s entire portfolio in
of all MFI loans across Adding in SHGs, the total number of less than H60k
India are in the state of microcredit accounts is around
the crisis) to H26,255 cr (USD FY 2011. DOWN income encourages
82%
5.3Bn) in portfolio and 31.7
134MM
Repayment rates in AP plummeted misrepresentation
Andhra Pradesh (AP) million clients
from almost 100% to 5% following
since loan recipients
may find themselves
the AP Act. suddenly excluded