Top MFI bodies plan to move Supreme Court over Assam's micro-loan Bill

MFIN, Sa-Dhan, banking association in informal talks; RBI to be made party

The Assam government’s passage of the Micro Finance Institutions (Regulation of Money Lending) Bill, 2020, has reached a flashpoint. Leading industry bodies are weighing the option of filing a public interest litigation in the Supreme Court by making the banking regulator a party to it.

The Microfinance Institutions Network (MFIN), Sa-Dhan, and the Indian Banks’ Association are in informal consultations on the legal options available to them after the passage of the Bill. The industry bodies have also reached out to the Prime Minister’s Office, Department of Financial Services, and senior Bharatiya Janata Party’s office bearers on the fallout to the MFI business.

Incidentally, the Reserve Bank of India (RBI) had written to the Assam state government, highlighting its concerns ahead of the Bill being passed.

“We need clarity on the applicability of the provisions of the Bill. It restricts us operationally, like in collections,” said a source. The fear is that an MFI crisis — like in undivided Andhra Pradesh a decade ago — may be brewing.

The Bill, for instance, states that collections are to be done only at gram panchayat offices and venues approved by the state’s officials. Post-pandemic, MFIs’ collections have improved, but are nowhere near the 95-per cent-plus levels of the past.

Another provision of the Bill states that MFIs are to register with the local authority within 30 days of the Act being in force, which is to be valid for two years.

It is felt that given that the Bill will cut down on the elbow room available to MFIs, private equity investors and banks with exposure to them can turn jittery. What is also unsaid is the likely political influence which may kick in.

“The emerging situation is akin to what prevailed in urban co-operative banks (UCBs) with dual control between the registrar of co-operatives and the central bank,” said a source. This was rectified in June last year, with UCBs being brought under the regulatory framework of the RBI by amending the seven-decade-old Banking Regulation Act (1949).
 

CRIF MicroLend, in its latest report, says that the MFI business portfolio stood at Rs 2.24 trillion as of September 2020, a fall of 1.15 per cent since June 2020 in the aftermath of the lockdown, while still having grown 14 per cent year-on-year. Both the customer base and active loans shrunk 7 per cent to 57 million, and 1.5 per cent to 105 million, respectively, at the end of June 2020. Early delinquency in 1-30 days past due stood at 15.7 per cent in September 2020, from 2.3 per cent in 2019-20.