Andhra tightens grip on MFIs,issues stringent guidelines

Tightening the grip on micro-finance institutions,the Andhra Pradesh government issued guidelines in the states Micro-Finance Institutions Regulation of Money Lending Bill.

Tightening the grip on micro-finance institutions,the Andhra Pradesh government today issued guidelines in the states Micro-Finance Institutions Regulation of Money Lending Bill,2010. The Bill now provides for a system of regulation of the money-lending activities of the MFIs for their operations in the state. No MFI can operate without registering with the registration authorities RA set up under the Act.

The RA in rural areas is project director,district rural development agency DRDA,and in urban areas,it is project director,mission for elimination of poverty in municipal areas MEPMA. Operation without registration is an offense punishable with imprisonment of up to three years,or a fine of up Rs 1 lakh,or both.

In order to prevent giving of multiple loans to one household without verifying the capacity to repay,MFIs proposing to give loans to SHGs which are already linked with bank for credit needs,have to apply for prior approval to the RA. The registering authority has to check the capacity of a potential borrower to repay before giving this approval. Lending to SHGs already having bank loans without this approval is an offence punishable with imprisonment of up to three years. Use of coercion for recovery of the loans will be an offence punishable with imprisonment which may extend to three years or with finance which may extend to one lakh rupees or with both.

MFIs have to maintain records which shall be available for scrutiny by the inspecting officers and relevant details shall be shared with the borrowers. They should also disclose the loans given along with the rates of interest every month to the registering authority.

A system for registering complaints from Self-Help Groups SHGs on MFI atrocities has been put in place at the level of registering authority with a provision to enquire and take action,if found correct. A fast track court will be put in place for trying and punishing offenders under Act within three months.

The provisions of the Act are also applicable for the subsisting loans granted by MFIs to the SHG members. MFIs while welcoming the regulations,reacted sharply to the rule to take approvals from registering authorities for assessing a borrowers repayment capability.

There is going to be too much red-tape. There are lakhs and lakhs of borrowers in the state and making applications before giving loans to each one of them will involve mountains of paper work,delays and a lot of red tape. The Micro-finance Institutions Network MFIN has already made it compulsory for all MFIs to cross-check with a database on borrowers before giving loans. I think this was enough to make MFIs resist from irresponsible lending, CEO of Basix Micro-finance Sanjeev Vishwanathan said.