At a time when microfinance institutions (MFIs) are suffering loss of business, particularly in Andhra Pradesh, the Centre today said it did not intend to strangulate the sector but regulate it.
“My idea is not to strangulate them (MFIs), but to regulate them so that the interest that they charge is not exorbitant and the method of realisation, under no circumstances, should be quick,” Finance Minister Pranab Mukherjee said at the Hindustan Times Leadership Summit here.
The microfinance industry has been under pressure after the Andhra Pradesh government introduced an Ordinance last month to regulate its lending practices. MFIs have been criticised for charging very high interest rates and using strong arm tactics for loan recovery.
The MFIs say they extend loans to unbanked areas and so the cost associated to it runs up to as high as 34 per cent. They usually lend money to borrowers through women groups in remote areas.
“The rate of interest should be moderate. Banks are also being instructed to provide them (MFIs) with necessary guidelines (and check) if those guidelines are complied to. I would not like to strangulate the system, because it is not possible for the banks to reach large number of people through regular banking services,” Mukherjee said.
Earlier, the microfinance institution network had said the companies would cut interest rates to 24 per cent eventually.