Cases against Akula and Spandana CEO.
A court reprieve to the microfinance institutions (MFIs), arrest of employees of two prominent MFIs and their promoters being booked have added a new dimension to the sector, already ravaged by a series of adverse events of late.
The Andhra Pradesh High Court on Friday passed interim orders allowing MFIs to continue with their business, provided they did not resort to coercive recovery and registered with the specified agency within a week. The court specified the state could launch prosecution against the MFIs if they were found violating these provisions.
On Thursday, Kurnool police arrested three employees of SKS Microfinance and Spandana Sphoorty Financial Limited – Venkatesh, Ramesh and Pullaiah – for allegedly "coercive methods" to recover loans. Kurnool Superintendent of Police C H Srikanth told Business Standard a case against them had been registered under the penal code on October 18. Later they were also booked under Section 16 of the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Ordinance, 2010. The employees were arrested following a complaint by one Ammulu of Yemmiganur town in the district. This is the first case under the new ordinance aimed at regulating the activities of MFIs.
Srikanth added that cases have been booked against SKS Founder and Chairman Vikram Akula and Spandana Chief Executive Officer Padmaja Reddy, too, under the provisions of the ordinance.
"Investigation is on. They are yet to be arrested," he said, indicating that Akula and Reddy could face arrests.
SKS Microfinance had its board meeting at an undisclosed location on Friday. Its share prices also tanked by around 5 per cent to a month's low of Rs 1,050 at the Bombay Stock Exchange.
The high court, which was hearing the petitions filed by Microfinance Institutions Network (MFIN) and SKS Microfinance, on October 20 had posted the matter for on Friday after asking the government to explain certain provisions in the ordinance issued on October 15.
The ordinance stressed on suspension of activities of MFIs till they got registered with the district rural development agency.
Following this, MFIN contested that the state had no right to regulate the microfinance institutions, which were registered as non-banking finance companies with the Reserve Bank of India.
"The MFIs should be free to conduct business by adhering to Rule 9 and 16 of the ordinance. The state will be at liberty to initiate action if the MFIs violate the provisions,'' a two-member bench said.
Rule 9 of the ordinance says: "No MFI should recover from the borrower towards interest in respect of any loans advanced by an amount in excess of the principal amount." It adds that all loans in respect of which an MFI realised from the borrower an amount equal to twice the principal amount would stand discharged and the borrower would be entitled to obtain refund and the MFI would be bound to refund the excess amount paid by the borrower.
Rule 16 imposes penalty for coercive actions. According to it, the MFI representatives who resort to coercive measures would be liable for imprisonment upto three years or a fine upto Rs 1,00,000, or both. It says obstructing or using violence, insulting, intimidating the borrower or her family members, following them from place to place, interfering with their property, frequenting their houses or workplace, annoying them and others would be seen as coercive actions.
| TURN OF EVENTS |
| July-Aug: SKS Microfinance goes for IPO |
| Sept-Oct: 30 people commit suicide due to alleged coercion by MFIs |
| Oct 4: SKS MD & CEO Suresh Gurumani sacked, director Ashish Lakhanpal resigns |
| Oct 15: AP passes ordinance to check MFI activities, RBI announces panel to study their functioning |
| Oct 20: State HC allows petitions by MFIN challenging AP ordinance |
| Oct 22: HC passes interim orders allowing MFIs to continue operations, with riders |
| Oct 22: Kurnool police arrest 3 employees of SKS & Spandana |
| Oct 22: SKS board meets at an undisclosed location, Gurumani attends meeting |
The interim order also implies that the MFIs should recover their loans in the gram panchayat office or at a public place. The court felt the interests of microfinance institutions were not fully protected due to the insistence of the state government of not allowing any operations till registrations were done.
Meanwhile, the government has been given two weeks to file a counter to the petition filed by MFIN.
When contacted, Vijay Mahajan, chairman of Basix and president of MFIN, said: "It is not business as usual. We are barred from going to borrowers for recovery and instead it should happen in gram panchayat." However, the interim order will help the MFIs to resume operations.
