Ruling seen as setback for MFIs looking to disburse fresh loans

The Andhra Pradesh High Court on Monday said it was for the State Government to take a call on enforcement of the AP MFI (Regulation of Moneylending) Act, 2010.

The court ‘closed’ a writ petition filed by SKS Microfinance Ltd and some other industry players challenging the Act without passing any order against the Act as sought by the petitioners.

As a Central Bill on microfinance regulation is currently under way along with Reserve Bank of India’s guidelines to microfinance institutions (MFIs), the AP Govt might take a comprehensive view on the issue, the court said.

The State Government had promulgated an ordinance in October 2010 in the wake of a row over the alleged harassment of clients by recovery agents of MFIs leading to their suicides. This was subsequently made an Act.

Apart from prohibiting multiple lending, the Act puts many restrictions on recovery agents and made Government’s approval a must for fresh lending.


When contacted, Reddy Subrahmanyam, Principle Secretary, Department of Rural Development, Government of AP, told Business Line that the Act would stay on.

“We are very clear on the issue and the need to protect the poor. I don’t think the existing regulatory mechanism of Reserve Bank of India has enough teeth nor the wherewithal to protect the interests of the clients,” he said.

However, the Government was always looking into the issue with an ‘open mind’, the official added.

A spokesperson of SKS Microfinance said they needed to look into the judgment in detail before responding.

The judgment could be seen as a setback to the MFIs as they are hoping for normalisation of business in Andhra Pradesh to disburse fresh loans and collect over Rs 6,000 crore of dues from clients.

(This article was published on February 11, 2013)
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