Bill to regulate MFIs tabled in Andhra assembly

A bill to regulate microfinance institutions in Andhra Pradesh was tabled in the assembly Saturday.

india Updated: Dec 11, 2010 13:23 IST

A bill to regulate microfinance institutions in Andhra Pradesh was tabled in the assembly Saturday.

The bill, which will replace the ordinance promulgated in October, was tabled by Minister for Legislative Affairs D. Sreedhar Babu amid pandemonium over the opposition demand for withdrawal of cases against Telangana students.

The bill, copies of which were circulated Friday, proposed no amendments to the ordinance, as demanded by microfinance institutions (MFIs).

MFIs fear that the legislation, if passed without amendments, would make their operations difficult in Andhra Pradesh, the largest market for them in India.

The bill is likely to come up for debate Tuesday and may be passed without any changes. On Oct 15, an ordinance was promulgated following a spate of suicides by borrowers due to alleged harassment by MFIs for repayment.

MFIs complained that the ordinance hit hard their operations, with the collection rate falling to 20 percent from 95 percent earlier. As a result, MFIs had to divert their funds from Bihar and Chhattisgarh to the tune of Rs.1,200 crore to Rs.1,500 crore to repay the banks, according to the Microfinance Institutions Network (MFIN), a self-regulatory body of 44 top micro lenders.

MFIN president Vijay Mahajan suggested certain amendments to the ordinance and demanded the setting up of a house committee to seek opinion from experts and hold consultations with various stakeholders.

The body also wants the government to wait for the report of Y.H. Malegam committee before passing the legislation. The committee was formed by the Reserve Bank of India (RBI) to look into MFI lending practices.

According to MFIN, the legislation could hamper the repayment of Rs 7,400 crore microfinance funding in the state and Rs. 4,000 crore in the country. It warned that this could also have serious repercussions for the banking sector.

"The ordinance has had a devastating impact for access to finance for poor and low income households," said Mahajan.

Since the promulgation of the ordinance, an estimated 12 lakh women were not able to receive loans. The balance of the 97 lakh MFI members would face similar difficulties in the future, he warned.

First Published: Dec 11, 2010 13:22 IST