The Andhra Pradesh government does not intend to withdraw the AP Micro Finance Institutions (MFIs) (Regulation of Money Lending) Act, even if the Reserve Bank of India accepts the recommendations of the Malegam committee on the subject.
The committee had said if its recommendations were accepted, the need for a separate AP MFI (Regulations of Money Lending) Act would not survive.
“According to the List II of the Constitution, the regulation of money lending is the original jurisdiction of the state government. An Act is the will of the people. Accordingly, whether or not the need for AP MFI (Regulation of Money Lending) Act exists will be decided only by the AP Legislature and not by the RBI,” says Rural Development Principal Secretary R Subrahmanyam.
Adding: “The proposal of RBI supervision is unlikely to be effective since they do not have the machinery to do such a task,” Subrahmanyam said, industry gave similar assurances during the crisis in Krishna district in 2005-06 but little has been put in practice.
The committee capped the interest rate at 24 per cent for all individual loans given by MFIs after March 31.
“The committee recommended much higher margins to the MFIs than the industry norm,” he said, adding the interest should be calculated on a diminishing balance.
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The government also said the report proposed no relief for the existing loans, some of which have been lent at interest rates between 28 and 60 per cent.
With no direction to MFIs on setting up of credit bureaus, it is not clear how the MFIs will stick to limiting the loans to Rs 25,000 on each household as recommended by the committee.
“The Malegam report has addressed the concerns of big MFIs. There are no recommendations for improving the credit flow from the banks directly to the poor using the self-help group (SHG) mechanism,” he adds.
According to state finance minister Anam Ramanarayana Reddy, the government will not accept any recommendations that do not effectively protect the interests of women SHGs and the poor, who have been facing hardships due to high interest rates and coercive recovery practices.