Sensing foul play in the introduction of new products like loans for men and interest-free loans by microfinance institutions (MFIs), the Andhra Pradesh government is set to issue a notification to bring these products under the purview of the new MFI Act.
MFIs in the state, whose revenues dropped after the introduction of the MFI Act, were finding new methods to carry on their business by introducing fresh products like loans to men and interest-free loans, a senior state government official said.
According to R Subrahmanyam, principal secretary (panchayat raj and rural development), some MFIs are offering loans to the husbands of women members of self-help groups(SHGs), saying that extending loans to them will not attract the provisions of the Microfinance Act, which came into existence in December. Some MFIs were considering extending interest-free loans, arguing they would not come under the purview of the Act, he said.
“That shows the desperation. When you want to make hyper profits, try to duck and find ways. We will not let that happen. A notification will be issued in a day or two, making it clear that these kinds of loans will also come under the Act,” Subrahmanyam said.
The Andhra Pradesh Microfinance Institutions (Regulation of Moneylending) Act, 2010 is aimed at regulating the sector by keeping tabs on lending and recoveries by MFIs. It prohibits them from lending to SHGs already covered by the formal banking system, without seeking prior approval from banks.
Share Microfin, one of the largest MFIs in the country, recently launched ‘Suraksha Loan’ exclusively for men. In a circular to its branches, the company said the loan had to be extended to the husband of a woman member of an SHG. The circular stated the outstanding loan would be nullified only in case of death, but not suicide. Sources in SKS Microfinance said extending interest-free loans was a vague idea and one of the 40-odd concepts the company was mulling over.
“Even if they term these loans as interest-free or loans to men, they will attract all sections of the Microfinance Act. It will be viewed as a violation,” Subrahmanyam said.
