MFIs may challenge HC ruling, see 40% growth in FY'13

Last year the industry de-grew by a whopping 24-25%

The Microfinance Institutions Network (MFIN) has hinted at challenging the recent Andhra High Court order upholding the legality of the Andhra MFI Act in the Supreme Court, a top official of the umbrella body that has over 40 microlenders as members, has said.

The MFIN is also expecting the industry to log in a healthy 40% growth this fiscal, after the last year's drought when the industry de-grew by a whopping 24-25%.

"Challenging the Andhra Pradesh High Court order which upheld the constitutional validity of the Andhra MFI Act, at the Supreme Court is under our active consideration," MFIN chief executive Alok Prasad told PTI over the weekend.

He added that nothing, however, has been finalised in this regard in view of the belief that the Budget session will pass the Microfinance Bill and the same will come into force by the middle of the next fiscal.

The Microfinance Institutions (Development and Regulation) Bill, which is with the Parliamentary standing panel, is expected to cover all MFIs, including the smaller ones.

The Central Bill also proposes to take MFIs outside the purview of state-level legislation such as the Andhra law, and treats MFIs as an extended arm of banks, besides according regulatory powers over them to the RBI.

The Bill also seeks to allow MFIs to collect small amounts of deposits.

On February 11, a division bench of Andhra Pradesh High Court disposed of a petition that sought to declare the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act 2010 as illegal and unconstitutional.

However, the Court suggested that the AP government review its Act as a new Bill related to Microfinance sector is currently pending in Parliament.

The microlenders challenged two years ago the AP law that had barred them from lending to a borrower second time without prior approval from government.

On the court verdict, Prasad further said, "despite the fact that the court did not agree with our view, it has clearly recognised the Reserve Bank as the sole regulator of the sector, which is a very good development."

He also hoped that following this verdict, the AP administration, which has been alleged to have framed the law to protect its own business interests as it is also running a microfinance business through the women's self-help groups across the state, takes a constructive view towards the industry.

On the growth front, Prasad, said he "expects the industry to post a healthy 40% growth this fiscal as bank funding has returned to the sector, after degrowing  around 25% last fiscal."