The Andhra Pradesh High Court on Monday upheld the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Act, 2011, asking the state government to review the legislation in wake of the proposed national regulation concerning the microfinance sector.
Petitioners SKS and others sought an order striking down the legislation that banned door-to-door collection process, mandating microlenders to obtain government approvals before giving a second loan to the borrower. This had impacted the microfinance industry in Andhra in a major way, given that it contributed 30% to the total industry size.
The high court, however, observed that the Reserve Bank of India has the authority to govern non-banking financial companies (NBFCs) engaged in microfinance. The court has given six-week time for further review. The state government had originally brought out the ordinance in October 2010 after a row over the alleged harassment of clients by recovery agents of MFIs leading to large number of suicides.
Speaking to FE, CEO of Microfinance Institutions Network (MFIN) Alok Prasad said, ?Looking at the observations, we are happy that the high court has recognised RBI as regulator of NBFC-MFI. However, we are yet to get the copy from the court to understand the full implication. The MFI Bill has now been taken up by the standing committee on finance for discussions. As a part of the process of examination of the Bill, the standing committee is inviting comments from a wide range of stakeholders. It is also inviting select organisations (including MFIN) and individuals for giving oral evidence.?
?We are hopeful that the standing committee will be able to complete its deliberations by the end of February after which the final Bill can go back to Parliament, for consideration. With the government batting for the Bill, we are fairly optimistic that the legal framework for the industry will be fully in place by the middle of 2013,? he added.
Reddy Subrahmanyam, the principal secretary, department of rural development, said, ?Dismissing the petition which challenged the state legislation, the court has made some suggestions.
