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Rating agency CRISIL on Monday put 12 microfinance institutions on rating watch with negative implications, saying recent events can damage the business models of these firms.

Andhra Pradesh, the hub of India's microfinance sector, recently enacted rules against aggressive recovery practices by lenders who make loans that average about $150 to poor customers at interest rates that can top 30 percent.

"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 in a note.

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