AP introduces bill to regulate MFIs

For the first time in the country, Andhra Pradesh has come up with a bill to regulate Microfinance Institutions (MFIs) which are under scanner for allegedly imposing exorbitant interest rates and coercive loan recovery methods. The bill, which will replace an ordinance promulgated in October, was tabled in the state Assembly today by Legislative Affairs Minister D Sreedhar Babu. Significantly, no amendments have been suggested to the ordinance which is being strongly opposed by MFIs. The MFIs say the new norms envisaged in the ordinance for registration, loan disbursal and collections would make it very difficult for them to operate. The legislation, if passed without any amendments, would spell doom for the microfinance industry, warned Mi rofinance Institutions Network (MFIN), a self-regulatory body of 44 top micro lenders. AP is the largest market for MFIs accounting for one-third of the total lending in the country with over 65 lakh borrowers. The AP Micro Finance Institutions (Regulation of Money Lending) Bill is expected to come up for debate in the House on Tuesday. Going by the political mood in the state, it is likely to be passed without any changes. The legislation comes in the backdrop of a spate of suicides by rural borrowers, a majority of them women, due to unbearably high interest rates and the alleged coercive practices of MFI agents. The bill seeks to curb their “unlawful activities” and enforce discipline in lending. As per the legislation, the total interest payments should not exceed the principal loan amount. It also envisages stringent punishment, including imprisonment up to three years, for using coercing methods. The registration of MFIs has been made compulsory while collections should be done once a month instead of the present practice of weekly collections. The MFIs pointed out that the ordinance, issued on October 15, had hit their operations very hard. “As a result of the restrictions, the collections have fallen to 20 per cent from 95 per cent earlier. We could not disburse loans worth Rs 1,200 crore to an estimated 12 lakh rural women. The ordinance has had a devastating impact on access to finance for poor and low income households,” the MFIN President Vijay Mahajan said. The MFIN wants the government to wait for the report of YH Malegam committee, constituted by RBI to look into the Microfinance lending process, before passing the legislation. “There are some rogue MFIs who are bringing discredit to the entire sector. They should be punished. But, you cannot paint all the companies with the same brush,” said Vikram Akula, the founder of India’s largest MFI, SKS Microfinance