Microfinance Institutions Network (MFIN), a grouping of microfinance institutions, today said it is considering the option of legally challenging the Andhra Pradesh government's ordinance to regulate the fast-growing sector.
The ordinance is aimed at regulating microfinance institutions (MFIs), which have come under criticism for charging exorbitant interest rates from the poor and for their strong arm tactics for recovering money.
"We are contemplating all the avenues, including the legal option regarding the Ordinance," MFIN Chief Executive Alok Prasad told PTI.
MFIN is a self-regulatory group of NBFC MFIs, that works to promote microfinance sector in the country.
NBFC MFIs are generally those entities, which have been given the NBFC (Non-Banking Finance Company) status by the central bank.
"The ordinance is adversely impacting the MFIs in the state (Andhra Pradesh)," Prasad said and added that association would decide its next step after getting the legal opinion.
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The ordinance 'Andhra Pradesh MicroFinance Institutions (regulation of money lending) Ordinance, 2010' came into force on October 15.
When asked about allegations of MFIs charging exorbitant interest rates, Prasad pointed out the whole issue "is a matter of understanding".
According to industry experts, MFIs charge interest rate generally vary from 24 to 30 per cent.
Interestingly, the Finance Ministry last month had asked public sector banks to ensure that these institutions do not charge a loan rate above 24 per cent.
SKS Microfinance, the country's largest MFI, yesterday said it would seek legal opinion on whether the new ordinance would be applicable to the company, since the company is "not an NBFC (as per the Reserve Bank of India rules outlined in the ordinance)."
Hyderabad-based SKS is part of MFIN.