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The ordinance on microfinance institutions in Andhra Pradesh has several regulations to check the MFI lending process. However the ordinance makes no attempt to check interest rates. CNBC-TV18's Appaji Reddem reports.
The Andhra government is talking tough to microfinance institutions. Its MFI ordinance calls for better transparency in interest rates and lending and recovery methods as well as fast track courts to solve MFI issues and strict punishment in case of harassment. But the ordinance stops short of capping interest rates.
Vatti vasantha kumar, minister of rural development in Andhra Pradesh, said, ?The interest rate declared by the MFIs is different from the actual and indirect rate that includes hidden charges. If you take the hidden charges into consideration, the interest rate ranges from 50% to 84%.?
The ordinance also offers relief to in the form of subsidized loan swapping with 3% interest rate for self help groups. There have been reports of over 40 suicides among MFI customers in Andhra Pradesh recently. Of these, 17 have been customers of SKS Microfinance. Calling the suicides a tragedy, SKS sounder Vikram Akula says the MFI is willing to reduce its interest rate if RBI desires so.
Vikram Akula, Executive Chairman, SKS Microfinance, said, "But I can guarantee you that we charge 26% anywhere in the state and that's our interest rate that's Rs 2.15. RBI says you are ready to reduce it to Rs 2we are ready to do so."
The MFI ordinance is a ray of hope for MFI customers. Industry players are also of the opinion that regulation will help checking rogue MFIs. The RBI, meanwhile, has formed a panel to look into the functioning and collection mechanisms of MFIs. With banks still finding microfinance unattractive, India still feels the dire need for well regulated microfinance institutions.
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