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Corrective steps on microfinance

Facing heat from the Andhra Pradesh (AP) government, microfinance institutions (MFIs) acting under a banner called MFI Network (MFIN) have agreed to adopt corrective measures to address concerns raised by the state government.

business Updated: Nov 07, 2010 21:39 IST
Debobrat Ghose

Facing heat from the Andhra Pradesh (AP) government, microfinance institutions (MFIs) acting under a banner called MFI Network (MFIN) have agreed to adopt corrective measures to address concerns raised by the state government.

Coming up with a 15-point corrective measures statement, MFIs have agreed to bring down the interest rates to 24% initially to the borrowers of AP only.

“It’s an initial decision and our CEOs across other states will be discussing on this and decide about the rates,” MFIN president Vijay Mahajan said.

Though MFIN has agreed to go for corrective measures, it raised objections against a few clauses in the ordinance issued by the Andhra government. The government had enacted an ordinance on October 15, objecting the alleged functioning of MFIs in the state. “The ordinance has made functioning of MFIs difficult in AP. We’ve challenged it in the Andhra High Court. In some cases we agree to the government, whereas in some we object,” he said.

MFIN has expressed its reservations in the case of registration of MFIs in the state, followed by the predominance of self-help groups (SHGs), under which a borrower having taken loan from an SHG won’t be allowed to take loan from any MFI, unless one gets a no objection certificate from the administration. The umbrella organisation has also objected to the monthly recovery system and doing the same at panchayats offices. “Several borrowers want to repay weekly. We do it at doorsteps,” said Alok Prasad, CEO, MFIN.

MFIN has agreed to share borrowers’ credit history with the Andhra government and support the efforts to create a common data base. The MFIN has also agreed not to impose joint liability for loans above R15,000 by a member of a group.

Referring to the meeting MFIN had with the secretary, financial services and other senior officials at the finance ministry on Thursday, Mahajan said, “The secretary has expressed that we deserve to continue and collect repayments. After all we’re regulated by the RBI guidelines.”