Andhra Pradesh to deep-six Malegam panel recos

After taking an aggressive stand on regulating the microfinance sector, the Andhra Pradesh government feels the recommendations of the Malegam Committee, appointed by the Reserve Bank of India (RBI) would not serve the purpose in terms of protecting the interests of the borrowers.

“The report falls short of expectations to put in place an effective protection mechanism for the borrowers, constituting vulnerable sections of the society, from being exploited,” the state government said in a five-page response sent to the RBI.

According to the government document, the existing debt burden on the poor has already reached unserviceable levels at interest rates ranging from 28% to 60% and the committee report has not addressed this issue.

“The suggestions for rescheduling or debt-swapping of high-cost debt has also not been heeded,” it said.

The state government also said that the panel’s report has only addressed the concerns of the big microfinance institutions (MFIs) — not even those of the MFI sector — and certainly not the concerns of the rural/urban poor borrowers who went through a traumatic period of coercion at  the hands of the MFIs in the recent past.

The government has also found fault with the report in terms of absence of any recommendation for implementing the suggested measures.

“Reliance is placed on the very same MFIs, who have been violating the RBI guidelines at will and caused the current crisis, to self regulate. The report betrayed an anxiety to get the AP MFI Act withdrawn without a credible mechanism to implement and monitor a code of conduct, which is yet to be drawn up. The committee failed to appreciate that state governments are mandated to protect the people from money lending activities as per list II of the Indian Constitution. The MFI activities being money lending activities cannot shield themselves from closer public scrutiny,” the government said.

A team of senior state government officers led by rural development secretary R Subrahmanyam has been going through the recommendations of the committee for the last two days and picked holes in the report at least on 16 counts. On the recommendation of leaving the periodicity of repayment to the borrower, the government said the choice would not be exercised rationally due to an unequal relationship of the borrower and the MFI.

The government also expressed displeasure over the management of the books of the MFIs. “The implementation mechanism proposed is very weak. Greater reliance is placed on the ability of MFI to regulate itself. Even now, such codes exist, which are never implemented. The proposal of RBI supervision is unlikely to be effective since they do not have the machinery to do such a task,” it said.