After passing through turbulent times in Andhra Pradesh, the Microfinance Institutions Network (MFIN) may get a breather.
MFIN has been directed by the AP government for a fresh proposal on the existing issues after getting consensus from all its members, Sa-Dhan?s 234 members and few NGOs. Though MFIN had earlier submitted its request, it would be knocking the state government’s doors again detailing issues such as restructuring of loans, extending the tenure of loan repayment and changing the loan periodicity.
Alok Prasad, CEO, MFIN confirmed that the state government has asked for a fresh proposal and hoped that there would be some consideration in the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Bill, 2010.
Sources said that there was pressure from the bankers and other political groups on some of the issues in the Bill saying that is was a hastily-passed legislation and have asked for milder amendments.
?Major credit flow to the poor is halted as a consequence of the new Bill. Is the state government not accountable? It has to take proactive steps for ensuring credit flow again and that the legitimate credit needs of the poor are met by formal financing system rather than moneylenders,” Alok Prasad told FE.
However, government officials point out the vested interest of MFIs. One such example is that out of 44-odd MFIN members, only half of them are demanding a change to weekly collections as opposed to monthly format. ?About half of the MFIN members fall under greedy portfolio who want a change from the monthly format to weekly model. We have suggested the functioning of banks? model for implementation of the same,” a highly-placed government official said. However, there would be no change in our stand, the official said.
The four major issues with MFIs with regard to their operational methodology include charging usurious rates of interest including levying of other charges, recovery of loans in weekly installments, multiple lending to a single borrower/group, opaqueness in operations and coercive recovery methods adopted.
Incidentally, the report from the RBI sub-committee of the central board of directors to study issues and concerns in MFI sector said recovery is done on weekly basis on a fixed day, irrespective of the ability of the group to mobilise money for the repayment.
If repayment is not done on a day, the coercions starts as a threat and can end up driving the women for prostitution or even suicide. If there is no money to repay, they encouraged taking fresh loans to repay the earlier loans. A debt spiral got created due to this ever-greening tactics.