Vikram Akula, founder of India’s largest microcredit company, has called for “enlightened regulation” of the microfinance industry to weed out “rogue actors” without pushing other players to collapse.

“Do not destroy an entire industry because of the actions of a few rogue players,” Mr Akula, who founded SKS Microfinance, said in New Delhi on Tuesday at the World Economic Forum. “There is a right way to do microfinance, and a majority do practise ethical lending and have been doing so for decades.”

Mr Akula, the most visible face of India’s microfinance industry since his company’s August initial public offering raised $350m dollars, conceded that “occasionally, you do get rogue players and errant practices”. But he said such players should be held “fully accountable” without others being punished others in the process

His appeal comes as India’s for-profit microfinance industry has warned it is being pushed to the brink of collapse by a political and regulatory backlash in the southern Andhra Pradesh state, where officials have accused companies of “usurious” interest rates and “coercive” debt collection tactics.

The industry has denied wrongdoing but says some traditional moneylenders have rebranded themselves as microfinance institutions, adopted their group lending practices and are sullying the industry’s image.

“Microfinance in India, or at least in Andhra Pradesh, is in the midst of a near-death experience,” Sam Daley Harris, director of the Microcredit Summit Campaign, said at a conference in New Delhi this week.

India’s microfinance industry has around $6.7bn in outstanding loans – at interest rates of 27 to 36 per cent – to some 30m small rural and urban borrowers. But the sector’s once enviable repayment rates of 98 per cent have plummeted since mid-October, when state authorities abruptly adopted new rules requiring microlenders dramatically to change the way they operate.

Besides imposing onerous registration procedures on companies, authorities have banned lenders from collecting on their outstanding debts every week – standard practice in the international microfinance industry – and instead restricted collections to once a month.

At the same time, microcredit companies say their loan officers are being actively obstructed from meeting clients and collecting in debts by local officials, and political activists, who have spread rumours of an imminent microfinance debt waiver and are encouraging borrowers to withhold repayment.

Industry executives believe the Andhra Pradesh moves have been deliberately designed to inflict serious damage on what had been a fast-growing industry, after the SKS IPO turned the public spotlight on the huge profits being earned in an industry ostensibly intended to aid the poor.

“The ordinance was not designed just to reform,” Alok Prasad, chief executive of India’s Microfinance Institutions Network, said of the Andhra Pradesh ordinance. “It was designed to hurt. It was designed to wound.”

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