Money & Banking

Five States join AP in seeking tough regulation of MFIs

G. Naga Sridhar Hyderabad | Updated on November 10, 2017 Published on March 04, 2011


The Microfinance Institutions (MFIs) may be heading for bigger trouble in Andhra Pradesh.

Many State Governments have urged the RBI Governor, Dr D. Subba Rao, to put in place stringent regulation to rein in MFIs to “protect” interests of the poor.

RBI, which is currently working on regulation of MFIs following submission of recommendations of the Malegam panel, held a meeting with officials from various States last week to ascertain their views.

“Along with Andhra Pradesh, other States including Tamil Nadu, Bihar, Uttar Pradesh, Karnataka and Puducherry have made presentations seeking tough regulation,'' Mr R. Subrahmanyam, Principal Secretary, Department of Rural Development, Government of Andhra Pradesh, told Business Line here.

On the points that came up during the discussion, he said: “There has been congruence that there is a need to encourage banks for direct Self Help Group (SHG) linkage instead of encouraging intermediaries with a profit motive like MFI to do the financial inclusion.''

The apex bank was also asked by the States to provide more clarity on the field-level regulation of MFIs.

“The States have impressed upon the RBI Governor that it is not safe to regulate MFIs through Chartered Accountants who can only ensure corporate interests,'' the official added.

The much-awaited meeting had witnessed a “prolonged” discussion on the issue of regulation of interest rates.

AP ACT

The Andhra Pradesh Government had also categorically told RBI that “there is no question of withdrawing its MFI Regulation Act even after RBI announced its own regulation policy.”

“The RBI Governor appeared to have been convinced by our arguments and we need to see what the final outcome is. Anyway, we are going by our Act to protect the poor,'' he added.

BIG TROUBLE

Irrespective of the final decision of RBI, MFIs will surely be in trouble soon in other States too, say experts.

“At present, we are working on increasing exposure in non-AP States to steer clear of credit risk in Andhra Pradesh. If other major States join AP, the whole business model would be in trouble,'' said the head of a large, Hyderabad-based MFI.

Even SKS Microfinance Ltd, the country's only listed MFI, may have to rework its strategy as it has plans to increase exposure in States like Bihar.

Published on March 04, 2011
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