The state Assembly on Tuesday passed the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Bill, 2010.
The Bill replaces the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Ordinance that the government brought out in October this year after the state witnessed a spate of suicides by MFI borrowers.
Tourism minister Vatti Vasanth Kumar, who was the rural development minister before the Cabinet reshuffle and during whose time the ordinance was issued in October, told the House that the Bill was conceived after protracted discussions with various stakeholders and was aimed at protecting self-help group members from exploitation by MFIs.
The state government rejected the Opposition's demand that the Bill be referred to a joint select committee of the Legislature to study the various provisions in detail. The government rejected the demand for capping the interest rates charged by MFIs stating it was under the purview of the Government of India.
The Telugu Desam Party (TDP), earlier in the day, had written to deputy speaker Nadendla Manohar to refer the Bill to a joint select committee as it was toothless without a cap on the interest rates. Praja Rajyam Party MLA Vanga Geeta, BJP floor leader G Kishan Reddy and Lok Satta legislator N Jayaprakash Narayan too wanted that the Bill be referred to a joint select committee.
Meanwhile, the Microfinance Institutions Network (MFIN), the industry body, expressed its displeasure on the government passing the Bill without referring it to a special committee for a bigger debate.
According to its chief executive officer Alok Prasad, the Bill would create further hurdles for RBI-registered MFIs. “The issue of unavailability of credit to 9.7 million borrowers and an outstanding loan of Rs 7,500 crore is looming large before the industry. Passing the Bill without the required amendments will have a significant impact on the ability of MFIs to function smoothly,” he said.
MFIN had asked the government to amend certain provisions in the Bill particularly those relating to lending to women who have already secured a loan from the banks only after securing approval from the District Rural Development Agency.
He said MFIN members were committed to 'responsible-lending' and to work within the framework of the law. “We, in turn, expect the government to now ensure that the MFIs can conduct their business without fear of harassment arrests and motivated obstruction to their normal business activities. Any move that can cause long-term damage to the microfinance sector will serve nobody’s interest, least of the poor who have few options to seek loans,” he said.
MFIN president Vijay Mahajan had recently said MFIs would not be in a position to operate unless conditions changed and with that there was a possibility of disruption of credit. “Right now political parties and lower rung officials are discouraging the borrowers from repaying. This will not help the MFIs.”
Spandana Sphoorty Financial chief executive officer Padmaja Reddy said, “Many MFIs will close down their businesses.” Operating costs would increase and profits margins would spread thin, she added. The company's recoveries have fallen to 30-50 per cent in the last two months and no fresh group loans have been given. Spandana has an outstanding of Rs 1,700 crore and a customer base of 1.8 million.