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Yahoo! My Yahoo! Mail More Yahoo! Services Account Options New User? Sign Up Sign In Help Yahoo! Search web search Home Singapore Asia Pacific World Business Entertainment Sports Technology Weekend Edition Singapore Asia Pacific World India microlenders facing crisis, warns industry AFP - Sunday, December 12 Send IM Story Print India microlenders facing crisis, warns industry Slideshow: Full Photo Coverage: Business & Economy NEW DELHI (AFP) - – India's seven-billion-dollar microfinance industry could be thrown into crisis by a bill that seeks to regulate lending to the poor more tightly, a lobby representing the sector has warned. The legislation, slated to be taken up Tuesday by lawmakers in southern Andhra Pradesh state -- hub of India's microcredit activities -- sets new rules aimed at cracking down on aggressive lending and recovery practices. "The bill will make it impossible for microlenders to operate in the state and effectively put us out of business there," Vijay Mahajan, head of the Microfinance Institutions Network or MFIN, said in an interview late Saturday. Andhra Pradesh accounts for 2.5 billion dollars of microloans outstanding out of seven billion dollars nationwide, said Mahajan, whose MFIN represents 44 of India's leading microlenders. The microfinance sector has -- until recently -- been hailed as a saviour of India's poor for providing loans averaging 250 dollars to millions of borrowers -- often small entrepreneurs -- unable to get credit from mainstream banks. But the microfinanciers' surging profits, accusations of coercion and interest charges that can exceed 30 percent have led to mounting controversy with some critics accusing them of becoming grasping moneylenders. The new bill permits loans to be collected only at local government centres rather than at homes, which MFIN says will make it much tougher for borrowers to repay. It also only allows lenders to make collections once a month instead of the common weekly cycle across India. "The bill is unworkable," Mahajan told AFP, adding one of the biggest casualties would be India's largest for-profit microfinancier SKS which staged a highly successful initial share offer in August. Shares of SKS have crashed by half from their peak after its warnings the measure could have a "high" impact on earnings. Andhra Pradesh accounts for 27 percent of SKS's business. Andhra Pradesh moved to rein in microfinanciers after claims in October that high rates and arm-twisting debt collectors had caused 85 suicides. The sector admits there are "rogue" elements that must be checked but it says it has contributed hugely to poverty alleviation and says its steep rates reflect the cost of administering loans in India's rural hinterland. The whole debate over microlending has become "politicised" in Andhra Pradesh with politicians "fomenting borrowers not to repay," said Mahajan. "What you see is mass default" in the state, said Mahajan who also heads microlender Basix. He said as a result of the row microlenders' loan recovery rates in Andhra Pradesh are running at 10 percent. Commercial banks have become nervous about lending to the sector and private investors are also running shy, hurting operations of microfinanciers in Andhra Pradesh and elsewhere in India, he said. "If we don't repay the money to banks, we become defaulters so they will be reluctant to lend to us," he said. "The microfinance industry could fold up in Andhra Pradesh and you could see a domino effect across the country," he added. "If this sector closes, you will see people be driven back to the humiliation of moneylenders" who are known to levy interest rates as high as 100 percent. The sector is also under fire in neighbouring Bangladesh where the micro lending model was pioneered, with Prime Minister Sheikh Hasina accusing the industry of "sucking blood from the poor." 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