Can the draft MFI legislation, if enacted by the Parliament, help mircrofinance institutions (MFIs) recover the Rs 7,200-crore money that got stuck with the poor borrowers in Andhra Pradesh (AP) after the state enforced a regulation on their activities? The answer is a big no, according to the state government authorities.
“The only way these institutions can recover their money is by negotiating with the borrowers,” R Subrahmanyam, principal secretary, department of rural development, which deals with micro credit operations in the state, told Business Standard.
In contrast to the public perception that the state authorities had been completely working against the interests of MFIs, the rural development department had, in the past, offered to facilitate such negotiations between the borrowers and the MFIs so that they would get back their money.
“Only Basix had initiated negotiations with the borrowers in Karimnagar district of AP and are still continuing their efforts in this regard. Others had not responded to the offer but simply want to jump the line,” said the official.
Negotiating with the borrower would mean the institutions will have to be flexible as far as the interest amount on the loans they had given to these borrowers.
“In the first place, these poor families of rural Andhra Pradesh do not have the kind of surpluses that can enable them to repay the Rs 7,200-crore debt. The MFIs had never bothered to verify the repayment capacity of these families before offering multiple loans, nor they informed us about it. And, how can they now find fault with either the borrower or the government for the non-recovery of loans?” Subrahmanyam questioned.
It is not possible for these firms to get back their money, unless and until they start negotiations with the borrowers with an offer to either forgo or provide discount on the interest amount to make them meaningful. Without that, the field staff of these institutions do not even enter the villages as they fear the wrath of poor people for what they had done in the past, according to the official.
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He said the state government was willing to help the MFIs to recover their loans provided they came forward to negotiate with the borrowers.
According to Subrahmanyam, the draft Bill in the current form will not check exploitation of the poor by the institutions, which resorted to collection of exorbitant interest on micro loans and coercive practices for recovery.
“The state government had serious reservations with the way the draft Bill was prepared. If the MFIs are to be considered as an extension of banking arms, let them register themselves under the respect” he said.