MICROCAPITAL BRIEF: Payment Strike Hits India’s Andhra Pradesh State As Local Governments Urge Microfinance Borrowers Not to Repay

In India’s Andhra Pradesh state, local government officials are reportedly telling microfinance borrowers to stop repaying lenders even if they have the money to do so. The state government there has begun to increase restrictions on interest rates and arrest thuggish lending agents for fear that high rates and harassment from lenders has contributed to an overwhelming debt burden on microborrowers and suicides in the region.

These problems have only risen to chaotic proportions in Andhra Pradesh, but the issues are foreboding because many of India’s largest microfinance institutions (MFIs) have a presence there and 30 percent of India’s microloans come from the state.

Some observers believe that uncontrolled expansion of the microfinance industry is to blame for the recent turmoil. With an ever-increasing number of MFIs to choose from, borrowers are more likely to take on more debt than they can bear.

Still, the government’s call to borrowers to withhold payments may be misplaced despite its intentions. Satyama Ayrene, the mother of a microloan borrower who committed suicide, said that he did not commit suicide because of MFIs, rather “he was burdened with loans from the local moneylenders and didn’t know how to pay them back.” Many MFIs have already agreed to cap their interest rates around 24 percent and form a fund to help borrowers reschedule their payments [1].

By John Howard-Smith, Research Associate

[1] The Wall Street Journal: “India’s Major Crisis in Microlending”, http://online.wsj.com/article/SB10001424052702304316404575580663294846100.html

MicroCapital.org article, November 2, 2010: “MICROCAPITAL BRIEF: Experts Warn that New Legislation in Andhra Pradesh Might Reduce Profitability of Indian Microfinance Institutions (MFIs)”, https://www.microcapital.org/microcapital-brief-experts-warn-that-new-legislation-in-andhra-pradesh-might-reduce-profitability-of-indian-microfinance-institutions-mfis/

MicroCapital.org article, November 3, 2010: “MICROCAPITAL BRIEF: Former CEO of Jammu and Kashmir Bank Calls Efforts to Regulate Indian Microfinance Institutions (MFIs) “Flawed”, Argues NABARD Has Conflicts of Interest”, https://www.microcapital.org/microcapital-brief-former-ceo-of-jammu-and-kashmir-bank-calls-efforts-to-regulate-indian-microfinance-institutions-mfis-flawed-argues-nabard-has-conflicts-of-interest/

MicroCapital.org article, November 5, 2010: “MICROCAPITAL BRIEF: Reserve Bank of India to Publish Report on Regulating the Indian Microfinance Industry by End of January 2011”, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-to-publish-report-on-regulating-the-indian-microfinance-industry-by-end-of-january-2011/

MicroCapital.org article, November 8, 2010: “MICROCAPITAL BRIEF: Five Indian Microfinance Institutions (MFIs) Agree to Cut Interest Rates to 24%”, https://www.microcapital.org/microcapital-brief-five-indian-microfinance-institutions-mfis-agree-to-cut-interest-rates-to-24/

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