The Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act, 2011, which aims at curtailing coercive practices by the microfinance institutions, came into effect from January 1.
Governor ESL Narasimhan gave his assent on Friday to the Bill passed by the Assembly on December 14 and the Legislative Council the next day.
The state government brought in an ordinance on October 15 following a spate of suicides by the borrowers of MFIs. The ordinance was later replaced by a BIll. Minister for women welfare V Sunita Laxma Reddy told the Assembly that 75 women committed suicide unable to bear coercive practices adopted by MFIs to recover loans.
The government also contended that the MFIs were charging extremely high rate of interest. By their own admission, some MFIs, while registering with the District Rural Development Agency, said they charged 50-60 per cent interest.
The Act makes registration of all MFIs mandatory. The state government, in consultation with the High Court, may establish a fast-track court in each district for the settlement of disputes of civil nature between the borrowers and the MFI in respect of the loans granted.
The government in the representation to the Malegam Committee said some MFIs were adopting strong arm tactics for recovery. It also proposed an eight per cent cap on the interest rate spread. It said the role of the MFIs should be limited to areas or households that are facing financial exclusion. The MFIs should not be allowed to go for IPOs as it would shift the focus on profit generation only. It also said private equity investors were investing in the MFI sector attracted by the high returns.