Micro Finance Institutions Network (MFIN) plans to move the Supreme Court against the Andhra Pradesh government’s ordinance curbing micro-lending activities of private players in the state, according to people familiar with the development.
MFIN, the representative body of micro-lenders in India, is also hopeful of getting an interim order allowing its members to resume micro-lending operations in Andhra Pradesh. It currently has 44 microfinance companies as its members across India.
Alok Prasad, CEO of MFIN, confirmed the development.
The move comes after SKS Microfinance, the only listed micro-lender in the country, received an interim order from the apex court to resume micro-lending operations in Andhra Pradesh. But, the order is restricted to SKS as it had filed the petition. “As per our understanding, other microfinance companies need to file separate petitions to get similar relief. Since MFIN is the industry association, it can file the petition on behalf of us. MFIN is currently consulting legal advisors before moving the Supreme Court,” said a CEO of a microfinance company in Hyderabad.
In October 2010, the Andhra Pradesh state government passed an ordinance following allegations that micro-lenders charge exorbitant interest rates and use coercive methods to recover loans from the poor.
The Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Ordinance, 2010 (AP Act) mandated that every microfinance firm in the state will need to take a no-objection certificate from the local government and co-borrowers of the self-help group to which it was lending.
Also, micro-lenders were asked to recover loans on a monthly basis instead of on a weekly or fortnightly basis.
Micro-lenders claim the ordinance prevented them from conducting their businesses in Andhra Pradesh. Consider this: SKS had sent 74,000 applications to the state government for no-objection certificate after the ordinance was passed. Only 58 of those applications were approved.
The apex court’s interim order allows SKS to lend money to rural poor in Andhra Pradesh without taking a no-objection certificate from the state government, according to microfinance executives. It also permits it to recover loans on a weekly basis that was banned by the state government.
THE MICRO PICTURE
- Microfinance companies have been finding it tough to do business in Andhra Pradesh since the introduction of the microfinance ordinance introduced in 2010
- According to the ordinance, micro-lenders need to obtain no-objection certificates from the local government and co-borrowers of the self-help group to which they lend
- Micro-lenders allege the tough conditions prevent them from conducting business in the state
- Since the interim order is restricted to SKS Microfinance alone, MFIN, the representative body of micro-lenders in India, plans to move the SC on behalf of other micro-lenders
