Pranab Mukherjee urges Andhra to soften ordinance terms

The Centre wants the Andhra Pradesh government to soften its recent ordinance on microfinance.

“I have spoken to the Andhra chief minister (K Rosaiah) about making corrections in the ordinance so that the harsh conditions are taken off,” finance minister Pranab Mukherjee said at the Economic Editors’ Conference on Tuesday.

Dismissing the buzz on having a regulator for the microfinance segment, the finance minister said, “I am not thinking of appointing any regulator at this point.”

However, Reserve Bank of India (RBI) and National Bank for Agriculture and Rural Development (Nabard) are keeping a watch on the developments, he said.

According to the finance minister, a code for microfinance should be evolved by
the institutions themselves.

If the institutions fail to work out a mechanism, then perhaps the government can think of a regulator.

Among the steps suggested by the Centre are that the interest rates should not be very high; coercive recovery methods should not be used by the institutions; and the microfinance companies must ensure that borrowers are in a position to pay back the loan.

Earlier this month, the Andhra government issued an ordinance laying down stringent norms for microfinance firms for recovering money after a spate of suicides rocked the state.

Also, SKS Microfinance has been under the scrutiny of the Securities and Exchange Board of India (Sebi) for addressing investor concerns linked to dismissal of its CEO Suresh Gurumani soon after its IPO raised Rs 1,600 crore.
Now that microfinance companies are complaining that it is difficult to recover loans after the new ordinance norms have come into effect, the Centre wants Andhra Pradesh government to take off some of the harsh conditions. Microfinance firms had moved court recently challenging the ordinance.       
According to estimates, outstanding loans of microfinance firms rose by 97% to Rs 11,734 crore in 2008-09 over the previous year.

According to the Andhra Pradesh Microfinance Institutions (regulation of money lending) Ordinance 2010, all microfinance institutions operating in the state shall within 30 days of the ordinance apply for registration before the registering authority of the district.

They have to specify the villages and towns they operate in, the rate of interest being charged, system of conducting due diligence, system of recovery of money, list of persons authorised for conducting the activity or recovery of money which has been lent.

The ordinance also states that the registering authority will conduct verification of the details furnished by the institutions and then only accord registration for one year.

It also contains stringent rules for renewal of registration. The registering authority will verify the performance of the microfinance institutions at the field level and also hear general complaints from the public before extending the registration of the institutions, it says.

The Centre is not keen to set up a regulator for the microfinance segment.

The finance minister had to recently put it on record that he was not becoming India’s de-facto super-regulator, as was alleged. “I have no such intention,” he said to a statutory resolution in Lok Sabha disapproving the ordinance promulgated by the President on the issue of unit-linked insurance plans or Ulips.

Mukherjee said he had to intervene because the two regulators (Sebi and Irda) “continued to quarrel” over whose jurisdiction Ulips came under.

He said regulators will be encouraged to resolve issues, but if “regulators think they can do whatever, it won’t happen.”

“There has to be a point where the buck stops. And, it is with the (finance) minister where the buck stops.”

The Securities & Insurance Laws (Amendment and Validation) Bill 2010 was passed in Parliament, replacing the Securities & Insurance Laws (Amendment and Validation) Ordinance 2010. The new bill is aimed at allowing insurance companies to sell Ulips without requiring the permission of Sebi.