Growing consumerism, huge burden to pool up funds for Indiramma housing scheme and failure of financial inclusion by the government have led to boom in micro finance institutions (MFIs) in the district.
The MFIs, which had a turnover of just Rs.50 crore five to six years ago, increased the volume of business to Rs.300 crore plus per annum before the present controversy broke out leading to promulgation of an Ordinance to regulate their activity.
Enquiries with the bankers and NGOs revealed that in the district, there are mainly four major MFIs – Asmita, Spandana, Share and SKS – with 60 branches all over the district. They had concentrated their activity in the plain, rural areas and foothills of the Agency.
“Consumerism and the failure of the government to fund the expenditure on construction of units under Indiramma housing led to boom in MFIs,” Ch. Raghavendra Rao, Executive Director of Visakhapatnam Cooperative Bank, said.
Increased spending on eating, education of children and lion's share of earning of liquor revenue from the poor have led to the dependence on MFIs – who used to lure their prospective clients with easy access to finance without collateral security and documentation.
By charging almost 36 per cent interest per annum and even more in some cases, the MFIs used to force their clientele into debt trap. “The situation came to such a pass that due to arm-twisting methods by the recovery agents and private goons appointed by some MFIs, the victims had to borrow fresh loans to clear old dues,” a senior bank official said.
The staff of MFIs had stiff targets as well as good incentives for lending/recovery. As per RBI and NABARD guidelines, the banks give loans to Self Help Groups at low interest for a short term. The MFIs were in the habit of selecting the beneficiaries after studying the group dynamics of SHGs.
While welcoming the objective behind promulgation of Ordinance, many say it failed to suggest alternate source of income generation activity as per best practices followed in the trade.