Files petition against Andhra Pradesh MFI Ordinance
Upping the ante against the government, industry body Microfinance Institutions Network (MFIN) today filed a petition against the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Ordinance, 2010, in the state high court.
The petition is likely to come for hearing tomorrow. MFIN has 44 members, of which nearly 50 per cent are from Andhra Pradesh.
Speaking to reporters later in the day, MFIN Chief Executive Officer Alok Prasad and Basix Chairman Vijay Mahajan said MFIs in the state were not being allowed to continue their businesses due to the Ordinance, which makes it mandatory for them to get registered in all the districts they operate with the district rural development agency before going for recovery or giving fresh loans.
As a result, the recovery outstanding for this week stood at Rs 200 crore and will increase by the same amount every week. If the recovery does not happen for 60 to 90 days, the loans will turn toxic and become a burden on the borrowers. “We will hold the government of Andhra Pradesh responsible for destroying the credit discipline among the borrowers,” Mahajan said, adding the Ordinance would force the MFIs to increase the loan tenure and also put the total Rs 9,000 crore loans in the state at risk.
MFIN is also wary that other states would follow Andhra Pradesh, forcing the need for a massive loan waiver. The Ordinance will affect financial inclusion plans of the government as well. “The District Rural Development Agency has no competence to ascertain if a company is eligible to operate as an MFI or not. The government should also set a time frame for equipping itself to register the MFIs without any further delay,” Mahajan said. MFIN would also approach the Reserve Bank of India, which is regulating the non-banking financial companies.
“The Andhra Pradesh government, which has done some pioneering work in the self-help groups, should not see itself as a player in the MFI space, but consider itself as a referee. There might be some aberrations in the operations of MFIs, which might have driven some to suicide. But these are not industry standard,” he said demanding a judicial inquiry into the suicide cases.
“There is also a need for a study of the suicides by independent social scientists. We will atone for the deaths if proved that they had resulted due to the activities of the MFIs. First, as an industry body, we will monetarily compensate the family and then take punitive action against the erring staff. If required, the MFI will be expelled from the MFIN,” Mahajan said.
With no lending from the MFIs, the borrowers will go to private money lenders. “The Ordinance is presenting a Rs 2,400-crore opportunity for the money lenders,” he said.
The MFIN is of the view that the Ordinance imposes unreasonable restrictions on the operations of MFIs and also on the women from seeking funds from sources than the registered self-help groups. Across the country, MFI outstanding is estimated to be Rs 30,000 crore.