Spandana Microfinance: Surviving the Crisis

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Excerpts

Many MFIs in the country suffered heavily due to the crisis. Some MFIs whose operations were concentrated in Andhra Pradesh like SKS and Spandana suffered massive losses due to the non-recovery of their loans. They had to stop or severely limit their operations in the state. Some MFIs shut down some of their branches and sacked employees in order to just stay afloat. The cessation of their business activities led to many of the poor borrowers having to return to the local money lenders who followed even harsher recovery practices ...

MFIs like Spandana moved swiftly to survive the crisis. The first thing that the MFIs focused on was making themselves leaner and thereby cutting costs. Spandana closed down nearly 400 branches and administrative units in Andhra Pradesh and merged some smaller branches with bigger ones. It also reduced the number of its staff. It reduced its total number of employees from a peak of 14,000 in 2010 to 6,000 in 2011. Of the 8,000 employees who were sacked, 4,000 were from Andhra Pradesh itself. This helped the company keep its costs in control in the face of dwindling revenues...

With the policy uncertainty likely to continue for some more time, many MFIs across the country started to diversify into other related and unrelated financing areas. This, they thought, would help reduce the risk element in their loan portfolios and spread their revenue sources. Some MFIs started lending to local traders and shopkeepers and even began to provide loans with gold as security...

Spandana was also planning to give small housing loans to the rural poor and loans against pledged gold jewelry. In fact, Padmaja Reddy was planning to make Spandana an organization with a rural focus and a diversified range of business activities. Despite the initiatives taken by MFIs like Spandana, it became very tough for them to grow again after the crisis. Many of the MFIs had, in fact, stopped taking any initiatives due to the uncertain regulatory environment...

Exhibit I: Spandana's Growth in Numbers
Exhibit II: Stalled Growth in Indian Microfinance Sector
Exhibit III: Sources of Credit for Rural Poor after the Crisis (In Percentage)
Exhibit IV: Loans Disbursed by Banks to MFIs (Figures in Rs. Billions and Millions)
Exhibit V: Highlights of the Micro Finance Institutions (Development and Regulation) Bill, 2012

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