Update on Ajiwika and the situation in Andhra Pradesh

3 Dec

A few days back I wrote about the situation in Andhra Pradesh. Since then, several Microfinance Institutions (MFIs) are now considering extending the repayment period for the microloans so that their borrowers get some relief and the MFIs can also recover some of their microloans.

Although the situation is restricted to only the state of Andhra Pradesh in India, most banks have stopped lending to MFIs all over India. The Reserve Bank of India, which is the overall regulator of most financial institutions in India is awaiting the recommendations from the Malegam committee before finalizing on the appropriate regulatory changes for microfinance in India. The recommendations from the Malegam committee are due towards the end of January 2011. I anticipate that banks will resume lending once they have better clarity on the future shape of regulation of microfinance in India.

All borrowers of Ajiwika are paying back so there does not seem to be any immediate reason to be concerned. Ajiwika also needs to repay its existing lenders and it is able to do that currently. In normal course of events Ajiwika would have adequate liquid funds to make repayments to banks on time. However at this point, since fresh funds are not coming from banks they have they have to prudently manage their work capital so that they can make payments to banks on time.

Our partner bank also stopped lending after the Andhra Pradesh situation. As a result we are returning the funds we had raised for guarantee and that were not used to make loans available to Ajiwika. Guarantors will also continue to receive repayments on prior loans that are being paid back.

We are continuing to explore possibilities of resuming support to Ajiwika and its borrowers, and also signing up new partners in India and Africa. I look forward to updating everyone with some positive developments soon.

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