As the microfinance institutions (MFIs) in India are facing rough weather due to allegations of suicides after defaulting on high interest rates charged on the loans, the rating agency, Crisil has given further blow to the MFIs by downgrading status of 12 MFIs.

Crisil has put 12 MFIs on ‘Rating Watch with Negative Implications’. “Six of these MFIs have ratings that are in the ‘BB’ category or below,” said the press release of Crisil.

Some of the MFIs which have come under scanner by the rating agency include SKS Microfinance Ltd, Asmitha Microfin Ltd, Bharatiya Samruddhi Finance Ltd, Equitas Micro Finance India Pvt. Ltd, Grameen Financial Services Pvt. Ltd, Spandana Sphoorty Financial Ltd and Ujjivan Financial Services Pvt. Ltd.

It also took special note of Andhra Pradesh government’s recent ordinance in its release. “The Andhra ordinance has been highly unfavourable for the industry resulting in a precipitous drop in the collection efficiency and profitability of MFIs, especially those operating in Andhra,” Crisil said.

According to Crisil, “Collections in Andhra have plummeted below 20 per cent, from nearly 99 per cent prior to the ordinance, with MFIs finding it difficult to make contact with borrower groups, and having to move to a monthly repayment cycle in line with the ordinance.”

Crisil also suggested reforms in the functioning of MFIs. “Unless urgent steps, including regulatory intervention, are taken to address these issues, these developments have a potential to materially weaken the business and financial risk profiles of MFIs and result in rating downgrades,” it said.

"Damage to microfinance industry can affect credit-flow to rural poor," it noted.

Read the press release