The Andhra Pradesh government has expressed reservations on the Malegam Committee’s findings saying that its report failed to address core issues of the micofinance sector and falls short of expectations to put in place an effective protection mechanism for the borrowers.

In response to the RBI sub committee’s report on microfinance, the State government said that the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act which was enacted last month will continue to be in place despite the committee’s recommendation.

“The report has only addressed the concerns of the big MFIs (not even the MFI sector); and certainly not the concerns of the rural and urban poor borrowers who went through a traumatic period of coercion in the hands of MFIs in the recent past,” said a report by the State Panchayati Raj and Rural Development department.

The State government report noted that the Malegam committee had not recommended concrete steps for improving the credit flow from the banks directly to the poor using the SHG mechanism, which allows cheaper credit. “There should have been earmarking of priority sector lending for this purpose. The report tried to club the profiteering MFIs with the SHGs, which are owned and managed by poor themselves,” it said.

“No proper implementation machinery has been suggested. Reliance is placed on the very same MFIs — who have been violating the RBI guidelines at will, and caused the current crisis - to self regulate,” the report, which will be sent to the RBI said.

“The committee failed to appreciate that State governments are mandated to protect the people from money lending activities as per List II of the Indian Constitution.

The MFI activities, being money lending activities, cannot shield themselves from closer public scrutiny,” it added.

Asserting that the Andhra Pradesh government is not interested in regulating the microfinance sector, the report said, “As per the list II of the Constitution, the regulation of money lending is the original jurisdiction of the State Government. An Act is the will of the people. Accordingly, whether or not the need for AP MFI (regulation of money lending) Act exists will be decided only by the AP Legislature; and not by RBI.”

After a series of suicides of microfinance borrowers due to alleged coercive methods followed for recovery of loans, the State government promulgated an ordinance on microfinance lending in October and subsequently passed the legislation during winter session of the Assembly.

The Malegam Committee headed by Yezdi H Malegam, a long-standing member of RBI’s central board and a chartered accountant, submitted its report two days ago to RBI with various recommendations about the microfinance sector.