Govt to remove `hurdles' for MFIs

HYDERABAD: With micro finance institutions trying to lure the poor by introducing new products that supposedly do not come under the purview of MFI Act, the state government is all set to issue a notification that will replace the word "SHG women" and include a generic word "BPL households", so that MFIs continue to adhere to the stringent norms laid down in the Act.
According to sources in the chief minister's office, the law department vetted the notification on Friday in order to ensure that MFIs adhere to the existing stringent rules.
"The notification aims at bringing all kinds of MFI loan products, existing and future, under the purview of the Act. The MFIs are lending extensively to poor self-help group women and even their families. The notification will be made public in a day or two," the source at the CMO said.
It was also learnt that the CMO was receiving queries about the new products being offered to their spouses and family members by the MFIs.
Confirming the development, principal secretary (panchayat raj & rural development) Reddi Subrahmanyam said the notification would be announced keeping in mind the issues highlighted by the district nodal officers (DRDOs) regarding new instruments and the innovative methods being adopted by MFIs.
The state government recognises a family as those with an income of Rs 1 lakh per annum, both in rural and urban areas. The biggest hurdle for MFIs has been a clause in the Act that prevents them from lending to SHGs (who are being serviced by the formal banking system), without prior approval of the respective bank.
The Act makes it mandatory for MFIs to maintain accounts and furnish copies to the authority before the 10th of every month giving the list of borrowers and the loan amounts. The authority also insists on a duly signed receipt for payment made by the borrower to the MFI on account of any loan. It also bars MFIs from deploying agents for recovery.
The Act has been successful in bringing greater transparency in all money lending transactions by MFIs to the poor, said an official.
The state government brought in the Andhra Pradesh Microfinance Institutions (Regulation of Moneylending) Act, 2010 with a view to regulate the microfinance sector, whose representatives resorted to unlawful acts like forced collections and intimidation. The coercive actions were so severe that more than 60 loanees committed suicide, unable to bear the public humiliation by recovery agents.