The Andhra Pradesh government on Thursday requested the YH Malegam committee — set up by the Reserve Bank of India (RBI) to look into microfinance issues — to bar microfinance institutions (MFIs) from raising funds from stock markets and through the private equity (PE) route. The government has said that such moves are profit driven.
Submitting a report to the committee, the government also advocated the capping of interest rates charged by MFIs.
“We propose that a cap of 8% on the interest rate spread may be imposed on interest rates being charged by MFIs,” the report stated.
The requests, if they find favour with the committee, may spell disaster for some MFIs that are planning to raise funds through capital markets or the PE route.
The state government also blamed SIDBI and other banks for not following the RBI norms while lending to microfinance companies.
The report stated that the facility of attracting investment from PE investors in microfinance companies has opened gates for investments in the sector as it has a great potential and offers very high returns.
“These PEs are not social investors and therefore drive MFIs to earn more profits for them, defeating the very purpose of financial inclusion,” the report said.