To aid SHG-bank linkage plan

Our Bureau

The MFIs association under the guidance of Sa-Dhan would ensure that they charge reasonable interest rates.

Hyderabad, March 21

Expressing serious concern over the "stray incidents of harassment and charging exorbitant interest rates" by certain micro finance institutions (MFIs) in Andhra Pradesh, leading MFIs in the State under the guidance of Sa-Dhan, the national Association of Community Development Finance Institutions, have resolved to adopt a voluntary code of conduct.

Speaking to newspersons on Tuesday, the Sa-Dhan Executive Director, Mr Mathew Titus, said that though there might be issues with some MFIs in some locales, the vast majority of the players in the micro-finance industry were engaged in legitimate business practices.

According to him, the activities of certain "fly-by-night operators under the guise of MFIs" not only hurt the micro-finance industry but also the 30-lakh odd poor households that they currently serve.

"MFIs have an important role to play in providing a channel of access to finance for the poor that supplements the self-help group (SHG)-bank linkage channel. Of the total micro-credit till March 2005 of over Rs 10,000 crore, Rs 7,500 crore has come from SHG-bank linkage and Rs 2,500 crore from MFIs, which mainly borrow from SIDBI, ICICI and other private sector banks," Mr Titus said.

Mr Vijay Mahajan, CEO of BASIX, a leading MFI, said that these institutions would strive to complement the SHG-bank linkage programme to ensure that financial services were extended to those not served adequately by banks and also avoid over-financing of the same poor household.

The MFIs association under the guidance of Sa-Dhan would ensure that they charge reasonable interest rates based on existing Government agencies, public sector banks and RBI regulations.

The institutions would also comply with the RBI guidelines in terms of collecting savings and security deposits. They would adopt ethical loan recovery techniques.

Further, they would ensure high standards of corporate governance and transparency, he said.

Mr Mahajan, however, condemned the "high-handedness" of the State Government and administration in closing down the operations of MFIs in certain districts and in appointing a committee to look into the crisis without representation from them.

According to him, any impulsive decision of the Government to hinder the operations of MFIs would prove a major setback to the micro-finance movement in the country.

The CEO of SKS Microfinance, Mr Vikram Akula, said that the code of conduct adopted by the association would ensure that the isolated actions of some staff or institutions do not mar the work done by the vast majority of MFIs in the country.

(This article was published in the Business Line print edition dated March 22, 2006)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.