Financial Daily from THE HINDU group of publications
Saturday, Apr 22, 2006
Financial Daily from THE HINDU group of publications Saturday, Apr 22, 2006 |
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Money & Banking
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Trends Industry & Economy - Rural Development States - Andhra Pradesh AP to seek Central intervention to rein in micro-finance institutions C.R. Sukumar
According to the study, the MFIs are collecting 5-10 per cent of the loan amount as security deposit, taking 8-10 per cent as hidden charges. Though insurance charges are deducted from the borrowers, they are not given the insurance policy papers.
Hyderabad , April 21 The Andhra Pradesh Government has decided to seek the intervention of the Union Ministry of Finance (MoF) and the Reserve Bank of India into the affairs of micro-finance institutions (MFIs) in the wake of reported concerns over exorbitantly high interest rates being charged and coercive practices adopted by MFIs that led to several suicides in the State. The move follows submission of a detailed report and recommendations by the CEO of Society for Elimination of Rural Poverty (SERP), Mr T. Vijay Kumar, which has asked the State Government to inform the MoF, RBI, the Union Ministries of Rural Development and Urban Development on the `illegal and unethical practices of MFIs'. "The move to seek the intervention of RBI, Union Ministries of Finance, Rural and Urban Developments is to ensure that other States learn from the sad experiences in AP and take proper precautions," a senior Government official told Business Line. According to him, the State Government wants to alert the Centre on the seriousness of the issue since the later is learnt to be contemplating involving MFIs in the Swarnajayanti Gram Swarozgar Yojana (SGSY) programme. Further, he said, many multilateral agencies such as World Bank and International Fund for Agricultural Development (IFAD) seem to be recommending to the States to involve MFIs in anti-poverty programmes. Further, the State Government has also decided to urge the Insurance Regulatory and Development Authority (IRDA) to probe into the alleged irregularities committed by the MFIs in the form of insurance claims without the knowledge of borrowers. The SERP report submitted to the Government has pointed out several irregularities in the modus operandi of the MFIs. The appraisal process of MFIs for lending to the rural and urban poor is either very weak or they kept it like that deliberately, the report said. The MFIs are not taking into consideration the repayment capacity of the borrowers and in many instances, second loan was given even when the first loan is still not repaid. According to the SERP findings, the MFIs are collecting 5-10 per cent of the loan amount as security deposit, taking 8-10 per cent as hidden charges such as membership fee, card fee, insurance, bank charges and stationery charges. These details are concealed from the borrowers. Though insurance charges are deducted from the borrowers, they are not given the insurance policy papers. The insured family was not aware of the amount of claim sanctioned by the insurance companies. In many cases, the MFIs have put in their name as nominee in the insurance policies taken for the borrowers without their knowledge.
MFIs may cut rates
Meanwhile, the RBI convened a meeting of bankers and MFIs on Thursday to look into the charges on the MFIs. Several MFIs were learnt to have agreed in principle to bring down their interest rates to around 15 per cent on diminishing balance basis as against the current practice of 15 per cent flat rate, which works out to an effective interest rate of 33 per cent on declining balance. However, according to sources, a couple of leading MFIs refused to slash their interest rates terming such low interest rate of 15 per cent diminishing as unviable. Further, majority of the MFIs learnt to have in principle agreed to recover loan instalments on a monthly basis as against the existing practice of weekly recovery.
More Stories on : Trends | Rural Development | Credit Market | Andhra Pradesh
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