The Andhra Pradesh government on Friday issued an ordinance to rein in Microfinance Institutions (MFIs), whose coercive tactics led to the death of a number of people in the state recently.
Christened the ‘Andhra Pradesh MicroFinance Institutions (regulation of money lending) Ordinance, 2010’, the Ordinance came into force on Friday with the Governor E S L Narasimhan giving assent to it.
About 30 persons have died in the state in last 45 days reportedly due to the harassment by MFIs, official sources said.Taking a serious note of the deaths, Chief Minister K Rosaiah convened a special meeting of the cabinet on Thursday to adopt the Ordinance.
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The Ordinance is aimed at regulating the functioning of the MFIs and to come to the rescue of the victims who have been facing harassment from the MFIs, state Rural Development Minister V Vasant Kumar told reporters.
The Ordinance makes it mandatory for all MFIs to register with the district Registering Authority, the Project Director (PD) of District Rural Development Agency (DRDA) for rural areas and PD of MEMPA for urban areas, within 30 days from Friday.
The MFIs should specify the area of their operations, the rate of interest, the system of operation and recovery, the Minister said.
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The Registering Authority may, at any time, either suo moto or upon receipt of complaints by Self-Help Groups (SHGs) or general public cancel the registration after assigning sufficient reasons.
The MFIs should not seek security from a borrower by way of pawn or any other security and they should also display the rates of interest rates charged by them prominently in their offices. “No MFI shall charge any other amount from the borrower except charge prescribed in the Rules for submission of an application for grant of a loan,” the Ordinance said.
The ordinance makes it clear that the amount of interest should not be in excess of the principal amount.
Also, the MFI should not extend a second loan unless the first loan is cleared, the Minister said.
The MFIs must scrupulously maintain their accounts and submit a monthly statement to the Authority giving the list of loanees, the loan given to them and the amount of interest. In the wake of complaints that rowdy elements go to recover the loan amounts, the Ordinance mandates that only those staff with identity cards should go for recovery which should be done in a public place.
The loanees can complain to the Registering Authority in case of any problems and they can also call the grievance cell with toll free number: 15532.
The state government would establish fast track courts after consultation with the High Court for settlement of disputes of civil nature. All those connected with the MFI would be liable for punishment of imprisonment for upto three years or fine upto Rs 1 lakh or both if they resort to any coercive measures.
The Ordinance makes it clear that the SHG members would not be allowed to take a second loan without the permission of the Registering Authority.The members of one SHG cannot be members of another SHG simultaneously or without clearing the dues taken earlier, the Minister added.