The Andhra Pradesh government plans to come out with an ordinance to regulate the activities of microfinance institutions (MFIs) amid reports that these institutions were collecting ‘exorbitant’ interest rates and using coercive methods to recover loans extended to the poor.
“The effort will be to ensure that MFIs, in the name of lending to the needy, will not fleece customers,” state minister for rural development, Vatti Vasanta Kumar, told Business Standard.
The minister said the state Cabinet was yet to give its nod to the proposed ordinance. “After that, we will be in a position to tell what are the aspects that will be covered by the ordinance. The effort will be to take preventive measures.”
Of late, MFIs in the state have been at the receiving end, following frequent reports of people in the rural areas committing suicide “unable to bear the harassment” meted out by recovery agents.
“The high-handed behaviour of MFIs has been a concern in the recent few days. As many as 25 deaths have occurred in the last one month due to the alleged harassment of recovery agents. Is this a small figure and an insignificant aspect?” the minister asked.
MFIs, however, maintain that the state has no role to regulate their activities. They are governed by the Reserve Bank of India. However, according to R Subramanyam, principal secretary in state rural development department, the government can’t be a silent spectator to “this loot & scoot system” of MFIs’ functioning.
“Since RBI has stated that the state government is the best agency to regulate the activities of MFIs, we will certainly be looking at legislative measures to reign in their activities,” he said. Meanwhile, Chief Minister K Rosaiah has convened a meeting of district superintendents of police and rural development officials on October 14 to review the situation.
Nevertheless, MFIs feel incidents were being blown out of proportion.
“It is not right to say that MFIs are driving women to suicide. The loans extended are actually used for enhancing livelihoods. There could be multiple reasons for them to take the extreme step,” SKS Microfinance’s Managing Director (MD) and Chief Executive Officer (CEO), M R Rao, said.
Sajeev Viswanathan, CEO of Bhartiya Samruddhi Finance, said, “This is the curse of the development sector. Anything that goes wrong can be amplified more than it is.”
