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Andhra law to curb microfinance firms comes into force

BS Reporter  |  Hyderabad 

The Micro Finance Institutions (Regulation of Money Lending) Act, 2011, which aims at curtailing coercive practices by microfinance institutions, has come into effect from on Saturday.

Governor gave his assent to the Bill yesterday. The Bill was passed by the on December 14 and the Legislative Council the next day.

The state government had brought in an ordinance on October 15 following a spate of suicides by borrowers of The ordinance was later replaced by a Bill, which was passed last month. Minister for Women Welfare had told the Assembly that 75 women committed suicide, unable to bear the coercive practices adopted by to recover loans.

The government also contended that the charged extremely high rate of interest. By their own admission, some MFIs, while registering with the District Rural Development Agency said they charged 50 to 60 per cent interest.

The Act makes registration of all MFIs mandatory. The state government, in consultation with the high court, may establish a fast-track court in each district for settlement of disputes of civil nature between borrowers and MFIs.

The government, in the representation to the Malegam Committee, said some MFIs adopted strong arm tactics for recovery. It also proposed an eight per cent cap on the interest rate spread on the interest rates being charged by the MFIs.

It said the roles of MFIs should be limited to areas or households that are facing financial exclusion. It said the MFIs should not be allowed to go for IPOs as it would shift the focus of MFIs on profit generation only. It also said private equity players invested in the MFI sector due to the high returns while there was a need to promote social investor and rope in corporates as part of their corporate social responsibility.

First Published: Sun, January 02 2011. 00:40 IST