The Hindu : Andhra Pradesh / Hyderabad News : State Government to get tough with micro finance bodies

Online edition of India's National Newspaper
Saturday, Mar 18, 2006

Andhra Pradesh

Andhra Pradesh - Hyderabad

State Government to get tough with micro finance bodies

Special Correspondent

They are turning out to be worse than moneylenders: Chief Minister

FOCUS ON LENDING: Chief Minister Y.S. Rajasekhara Reddy addressing the bankers' committee meeting in Hyderabad on Friday. - Photo: Mohd. Yousuf

HYDERABAD: The State Government has decided to take tough measures against all such micro finance institutions (MFIs) that are exploiting people by charging exorbitant interest rates.

The decision comes in the light of increasing number of reports that while charging high rates of interest, the MFIs are resorting to "unethical" means to recover their dues.

Working group

To begin with, a working group will be constituted with officials of departments concerned and bankers to work out the modalities to tackle the menace, fast spreading in the rural areas.

Participating in the 157th meeting of the State Level Bankers Committee, Chief Minister, Y.S. Rajasekhara Reddy, expressed concern that the MFIs were turning out to be worse than moneylenders by charging interest rates in excess of 20 per cent. And, the ways and means they were adopting to recover their dues were definitely not ethical. "I don't think they are doing a good job.

Forcible recoveries

Their activities will come to everybody's notice only when they are not doing a good job," he said.

More importantly, the MFIs were financing those who had already been financed by the banks and forcibly recovering their dues. This was, in turn, hurting both the banks and those who were obtaining the finance. "This has become a vicious circle and needs to be addressed," he said.

Responding to suggestion from bankers that village and mandal-level organisations be given credit with interest rates on a par with self-help groups (SHGs), he said there was every scope that these organisations would become a sort of MFIs in such an event. There were already reports that some village organisations were offering loans to SHGs at interest rates much higher than what they had obtained from the banks and other financial institutions. "We need to ensure that these organisations do not bleed the self-help groups," he said.

Among those present included Ministers, K. Rosaiah, D. Srinivas and N. Raghavueera Reddy, RBI regional director, R. Gandhi, Nabard chief general manager, V. Ramakrishna Rao, SBI general manager, K. Seetaramam and` senior officials from Government departments and banks. Andhra Bank Chairman and managing director K. Ramakrishnan welcomed the participants.

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