Orissa bankers' panel to submit report soon on functioning of MFIs

With a view to keep a strict vigil on the activities of the Micro Finance Institutions (MFIs) operating in the state, it has been decided to constitute a sub-committee consisting of members of the State Level Bankers' Committee (SLBC).

This sub-committee will assess the mode of functioning of the MFIs and interest rates charged by them and submit a report to the Reserve Bank of India (RBI) within a month. This decision was taken at the 121st meeting of SLBC held here.

"It has been decided at this SLBC meeting to constitute a sub-committee which will probe into the mode of functioning of the MFIs and the interest rates charged by them. This committee will compile data on the 30-35 MFIs operating in the state and submit its report to the RBI within a month”, state finance minister Prafulla Chandra Ghadai told reporters after the meeting.

Biplab Chakraborty, general manager, RBI-Bhubaneswar said, “Once the SLBC sub-committee submits its report, the data on MFIs will be scrutinized by the RBI.”

Earlier addressing the delegates, Ghadai stressed on the need to fix a cap on the interest rates charged by the MFIs.

"It has come to our notice that the MFIs are charging very high rate of interest on the loans advance by them. The state government would like the banks offering loans to MFI to fix a cap on the interest rate charged by these institutions to their ultimate borrowers”, he said.

The Andhra Pradesh government has already come out with an ordinance to regulate the functioning of MFIs, Ghadai informed, adding, the situation has not been that alarming in Orissa.

The minister had a word of praise for the MFIs.

The MFIs can play a significant role inn facilitating financial inclusion as they have a greater understanding of the issues affecting poor people living in remote areas of the state, he stated.

It may be noted that at its 106 th meeting held on June 24, 2006, the SLBC had fixed interest rate in the range of 15-28 per cent for the MFIs and had warned that the MFIs charging interest rate beyond 28 per cent would be booked under the Orissa Money Lending Act and will be penalized.

The banks including PSU banks and private sector banks have sanctioned Rs 710.20 crore for the MFIs in the current financial year by the end of September.

MFIs operating in Orissa have advanced loans to people worth Rs 1500 crore in the past three to four years, reaching out to more than two million customers in Orissa.

Around 35 MFIs are registered in the state out of which 8-10 are functional, with the recovery rate of these institutions being around 95 per cent.

The MFIs are borrowing from commercial banks at the rate of 12-15 per cent and they have already reached out to 20 lakh out of 40 lakh BPL (Below Poverty Line) families in the state.