The Andhra Pradesh Government today requested the Y H Malegam committee, set up by the RBI to look into microfinance issues, to bar MFIs from raising funds from stock markets and private equity (PE) saying that such moves are profit driven.
Submitting a report to the committee, the government also strongly advocated the capping of interest rates charged by microfinance institutions (MFIs).
The requests, if they find favour with the committee, may spell disaster for some MFIs that are planning to raise funds through capital markets or the PE route.
The State Government also blamed SIDBI and other banks for not following the Reserve bank norms while lending to microfinance companies, which has resulted in a deplorable situation in Andhra Pradesh.
The report stated that the facility of attracting investment from PE investors in the microfinance companies has opened gates for investments in the sector as it has a great potential and offers very high returns.
"These PEs are not social investors and therefore drive MFIs to earn more profits for them, defeating the very purpose of Financial Inclusion." the report said.
"There is a need to promote social investors as also rope in corporates evincing interest in CSR. The MFIs shall not be allowed to go for IPOs as they have to generate more and more profits defeating the very purpose of microfinance," the Government requested the RBI committee.
It said the present crisis in the sector has emerged because SIDBI and other banks lent money to MFIs without monitoring their activities.
"There has been wide-spread violation of the RBI guidelines issued to the Banks in their letter dated 22nd November 2006. This calls for a detailed investigation and to fix responsibility on the Banks for these violations," said the report.
On MFI interest rates, it said that governments have been regulating what is being charged by money lenders and there is no reason as to why they should not regulate MFI lending.
"We propose that a cap of 8 per cent on the interest rate spread may be imposed on interest rates being charged by MFIs. Implementation of this maximum cap on the interest rate spread is best done by State Governments which have the machinery to verify the situation in the field," the report stated.