Microfinanciers say Bill will create more hurdles for genuine players

A day after the Andhra Pradesh assembly passed the Bill to regulate microfinance institutions (MFIs), the Microfinance Institution Network (MFIN) expressed disappointment over the way the Bill was passed without incorporating any amendments that were recommended by the industry body.

“This Bill as approved by the State Assembly will create further hurdles for legitimate RBI-registered microfinance in providing access to finance for the poor. The issue of unavailability of credit to 97 lakh borrowers and outstanding loans of Rs7,500 crore is looming large before the industry and passing the bill without required amendments will have a significant impact on the ability of microfinance institutions to function smoothly,” Alok Prasad, the MFIN’s CEO, said.

The AP government had promulgated an ordinance on October 15 following a spate of suicides allegedly due to the coercive recovery practices adopted by some of the MFIs.

Subsequently, a Bill was passed by the state assembly on Tuesday.

The microfinance industry body, after the ordinance was brought into force, had approached the state government with a set of objections and seeking amendments to the rules incorporated in the ordinance.

However, the recommendations by the 44-member self regulatory body were not made part of the Act that has come into effect since Tuesday and has carried forward the contents of the ordinance.

“MFIN members were in constant dialogue with AP government officials and there were expectations that the suggestions made by them would be incorporated in the Bill. Since the Bill and the ordinance are identical, the on-the-ground operating realities remain unchanged,” an MFIN statement said.

“MFIN members were surprised the Bill was introduced without amendments because they had expressed a desire to partner with the State administration on bringing about appropriate regulation since such regulation would have helped identify and prevent rogue MFIs with high interest rates or coercive practices from hurting poor and low income clients,” it said.

Prasad said, “All MFIN members are committed to ‘responsible-lending’ and to work within the framework of the law. We, in turn, expect the government to now ensure that the MFIs can conduct their business without fear of harassment arrests and motivated obstruction to their normal business activities. Any move that can cause long term damage to microfinance sector will serve nobody’s interest, least of all the poor, who have very few viable options to seek loans.”