SKS Microfinance to seek legal view on AP govt ordinance
SKS Microfinance today said it will seek legal opinion on whether the Andhra Pradesh government's new ordinance to regulate the microfinance sector will be applicable to the company.business Updated: Oct 17, 2010 20:55 IST
SKS Microfinance today said it will seek legal opinion on whether the Andhra Pradesh government's new ordinance to regulate the microfinance sector will be applicable to the company.
The ordinance is aimed at regulating Microfinance Institutions (MFIs), which have come under criticism for charging exorbitant interest rates from the poor and for their strong arm tactics for recovering money.
"We are seeking legal clarification as to whether the ordinance will apply to NBFC MFIs, as SKS Microfinance is not an NBFC (as per the Reserve Bank of India rules outlined in the ordinance)," the company said in a statement.
NBFC MFIs are generally those entities, which have been given the NBFC (Non-Banking Finance Company) status by the central bank.
According to SKS, the microfinance industry association --Microfinance Institutions Network (MFIN) -- is planning to "move a stay petition against the ordinance".
MFIN is a self-regulatory group of NBFC MFIs, that works to promote microfinance sector in the country. The ordinance 'Andhra Pradesh MicroFinance Institutions (regulation of money lending) Ordinance, 2010' came into force on October 15.
SKS, which is in the eye of a storm for sacking its CEO Suresh Gurumani, said the ordinance does not have an interest rate ceiling on MFI loans. Commenting on the ordinance, SKS founder and executive chairman Vikram Akula had said, "As an NBFC, SKS is under the purview of RBI and is regulated by it.
The state government will have to take up (the issue) with RBI and Finance Ministry as far as interest rates are concerned." He had noted that the company is "willing to reduce our rate of interest if the RBI or Finance Ministry asks us to do so.
We reduced rate of interest in the past, voluntarily. We are ready to lend at 24 per cent." The company currently charges an interest rate of 26 per cent.
Last month, the Finance Ministry had asked public sector banks to ensure that these institutions do not charge a loan rate above 24 per cent.
The statement said the company welcomes the provisions in the ordinance that prohibit harsh recovery practices. "SKS is fully equipped to meet the various data requirements called for by the ordinance as it holds all its member data (7.3 million as of June 30, 2010) in digitised form," it added.