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AP Govt reply to MFI petition on ordinance likely tomorrow

Press Trust of India  |  Hyderabad 

The Government is likely to file tomorrow its reply in the high court to the objections raised by institutions over its ordinance promulgated to rein in these bodies.

The state government would file its reply by Monday, a key source said here.

The High Court is then likely to take up hearing on the matter by November 11 or November 12, the source said.

MFIs are in the business of extending loans to the poor who do not have access to banks. At present, there are no separate norms for MFIs. Those MFIs, which fall in the category of NBFCs are governed by regulations. Others are regulated by sectoral norms which they fall in or state regulations.
The Reserve Bank has set up a sub-committee to study interest rates among other relevant practices by MFIs, which would submit its report by January.
As a number of suicides were reported in Andhra Pradesh, which many alleged were due to coercive loan recovery by MFIs and exorbitant interest rates charged by them, the state government had issued an Ordinance on October 15 to control MFIs in the State.
The Ordinance makes it mandatory for all MFIs to register with the district Registering Authority.
Industry body MFI Network filed a petition on October 20, challenging the Ordinance, as these institutions saw their activities declining.
MFIs say there are 23 districts in Andhra Pradesh, and separate registrations with each of them is troublesome.
The Ordinance had crippled the day-to-day activities of MFIs, which last week got an extension by three weeks from the High Court to register themselves with the district authorities.
After meeting the financial services secretary R Gopalan last week, the Micro Finance Institutions Network (MFIN) President Vijay Mahajan said the collections by MFIs in the state have been declining.
"Our outstanding loans in AP are Rs 9,000 crore. Initially we had a collection rate of 35-40 per cent, but following the Andhra Pradesh State Ordinance it is declining," he had said.
The ordinance prohibits MFIs from recovering interest amount more than principal amount and using coercive recovery practices.
About 85 per cent of the loans given by the MFIs come from banks. As of September quarter, the MFIs have lent over Rs 30,000 crore (USD 6 billion) to over 3 crore customers.
Since MFIs do not have access to deposits, they take money from banks to lend it further to their clients. While the banks charge interest rates in the range of 9-14 per cent on loans given to MFIs, some MFIs in turn charge as much as 34 per cent from their clients.

First Published: Sun, November 07 2010. 14:09 IST