The Hindu Business Line : AP plans strict action against errant MFIs

Industry & Economy - Rural Development
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States - Andhra Pradesh

AP plans strict action against errant MFIs

Our Bureau

Constitutes small working group to study the issue

THE ANDHRA PRADESH Chief Minister, Dr Y.S. Rajasekhara Reddy, chairing the 157th State Level Bankers Committee meeting in Hyderbad on Friday. - Mohammed Yousuf

Hyderabad , March 17

Concerned over reports that certain micro finance institutions (MFIs) in the State were charging exorbitant interest rates and harassing the rural population, the Andhra Pradesh Government is contemplating severe action against the errant MFIs.

The State Government has constituted a small working group to study the issue and submit its recommendations to the Finance Minister, Mr K. Rosaiah, so that appropriate action would be initiated against the errant MFIs and bail out the rural population, the Andhra Pradesh Chief Minister, Dr Y.S. Rajasekhara Reddy, said.

Addressing the bankers at the State Level Bankers Committee (SLBC) meet here on Friday, Dr Reddy said, "We have been receiving reports that the certain MFIs have become worse than moneylenders and harassing the members of self-help groups (SHGs). We were told that these MFIs are charging exorbitant interest rates of 15 per cent to 20 per cent flat, amounting to 30-40 per cent interest. They are said to be resorting to highly unethical recovery measures. It is turning into a vicious cycle."

The Chief Minister urged the commercial banks to aggressive lend to the SHGs to protect them from not only moneylenders but also wrong MFIs. Further, he has also asked the Government officials to evaluate bank lending to the village organisations and mandal organisations so that the rural population could avoid getting into the trap of delinquent MFIs.

Citing the instances of even village organisations and mandal organisations charging up to 12 per cent interest rate as against the bank rate of nine per cent, the Chief Minister has directed the officials to ensure that these organisations do not charge more than their operating charges that could range up to 50 basis points.

Earlier, citing the instances of MFIs charging excessive interest rates, Mr K. Rosaiah, said the only solution to the problem according to him was commercial banks aggressively financing the members of SHGs.

"MFIs like Spandana and Asmitha were claiming that they were working under the norms of the Reserve Bank of India. But my experience is that they are not doing so. I appeal the bankers to bail-out the rural women from the crisis."

The SLBC Convenor and Andhra Bank General Manager, Mr A.L. Nageswar Rao, said, "A group of State level review meeting that discussed the problem has suggested that the Government should bring suitable legislative act to regulate the MFIs. Further, the group has also suggested that the MFIs should not be allowed to bundle the products like insurance, savings, consumer products etc by floating some bogus companies. Of course, the group has also favoured that the bankers should be more liberal in meeting full requirement of the SHG members."

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