Cabinet to finalise ordinance to rein in MFIs today

Chief minister, K Rosaiah, has convened a meeting of the Cabinet on Thursday to consider and finalise the proposed ordinance aimed at regulating the activities of microfinance institutions.

In a release here on Wednesday, he stated that opinion of legal experts and the state advocate general was taken while drafting the ordinance.

He warned the MFIs that his government would initiate the most stringent action against them if they harassed the poor and indulged in unlawful activities.

Rosaiah held a meeting with rural development minister Vatti Vasantha Kumar, chief secretary SV Prasad and other officials to discuss the steps to be taken to “curb the illegal and unauthorised activities of the MFIs.” He would hold a video conference with district collectors and superintendents of police tomorrow and ask them to take action against erring MFIs.

Rosaiah also held a meeting of bankers and requested them to provide more micro credit on simple terms to the members of self-help groups. He wanted them to create awareness among the people that bank loans were simplified and interest rates were low so as to “wean away the poor, farmers and SHG members from the clutches of the MFIs.”

The chief minister, however, said a blanket ban on the MFIs may not be in the interest of the rural poor.

Earlier, Rosaiah wrote a letter to Prime Minister Manmohan Singh requesting his “urgent intervention to rein in the MFI activities.” The draft bill before Parliament to regulate MFIs may be re-examined in the context of growing irregularities of these institutions, he said.

According to the chief minister, the interest rate spread of MFIs may be limited to 8 per cent. It should also be made mandatory on the part of MFIs to disclose the effective interest rates to the clients. Use of coercion and unethical practices in recovery of loans should be banned and be made a cognisable, non-bailable offence. Commercial banks should be directed not to finance MFIs, which violate these regulations.