Barring a couple of agencies, all the micro finance institutes (MFIs) operating in Andhra Pradesh have decided to charge not more than 15 per cent interest on loans. | |
| They have also agreed to desist from providing multiple credit while competing with each other, according to state finance department officials. There over half a dozen MFIs operating in the state. |
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| "The recent controversy involving high interest rates charged by MFIs and forced collection of loans has come to an end with most of them agreeing to lower the interest rate besides observing a self-imposed code pertaining to the methodology of credit disbursement through the government initiated consultations recently," senior finance department officials told Business Standard. |
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| The official said that the loan recovery process in districts like Krishna and Guntur had come to a halt early this year amidst the allegations of harassment by these institutions. |
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| As per the broad agreement entered into with the administration, the MFIs will have to strictly confine themselves to microcredit operations and should not market any other products in insurance or foray into other areas of business. They also should avoid collecting deposits in rural areas, the official said. |
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| It may be recalled that the two district administrations forced MFIs such as Spandana, Mircro Fin, Asmitha and Undamma Bottu Pedatha to shut their operations in the face of the public outcry against higher rate of interest (24 per cent) and the methods of loan recovery. Credit disbursements worth over Rs 500 crore had faced the threat of becoming NPAs and ICICI was the major sufferer in this sudden turn of events. |
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| Some MFIs had openly accused some officials of taking bribes and disrupting their operations in the districts. |
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| According to the official, besides agreeing to extend loans at 15 per cent interest rate, the MFIs have also agreed to recover loans in accordance with the income levels of their poor clients. |
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| Also, any second loan given to the client would be treated as non-recoverable if these companies blindly target their counterparts' clients without minding their paying capacity, the official said. |
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| However, Basix and SKF have not agreed to these broad parameters, including the issue of reduction of interest rates mooted by the government, the finance department official, who was involved in the consultations with the MFIs, said. |
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| It is interesting to note that though the state government earlier wanted to cap the interest rates of such loans at 12 per cent through a legislation, the new-found realisation within the government departments with reference to the MFI experience shows that in fact anything below 15 per cent rate of interest is not viable. |
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| "After closely studying the operations of micro finance institutions, we too came to the conclusion that anything below 15 per cent can hardly sustain the MFI activity," the finance department official pointed out. |
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