HYDERABAD: Micro-finance institutions (MFIs) and other agencies involved in money lending are liable for prosecution for harassing their borrowers, particularly self-help group (SHG) members, according to a report by legal experts.

A five-member legal team has sent its report to the Government-sponsored Society for Elimination of Rural Poor (SERP) in which they have cited 20 instances wherein MFIs and others could be brought to book. The three-page report was forwarded to the Rural Development Department on Wednesday, which, in turn, is expected to be sent it to the Law Department for approval, a senior SERP official told The Hindu .

"In the wake of the illegal and unethical practices adopted by some MFIs to recover loans from SHG members, we decided to seek legal opinion," he said. Once the Law Department clears it, it will be widely publicised among the thrift groups so that they plan legal action against guilty MFIs.

According to a conservative estimate, major MFIs had extended loans totalling Rs. 1,000 crores in 14 districts of the State. Aggressive lending tactics lured SHG members to borrow money. Loan-sanctioning procedures were non-existent or inadequate.

SERP Chief Executive Officer T. Vijay Kumar, who submitted a report to Chief Minister Y. S. Rajasekhara Reddy last week, had mentioned that MFIs had violated several laws, both civil and criminal.

"The actions of MFIs violate several Central Acts and the Companies Act and attract the provisions of the economic offences wing of Ministry of Finance," the report said. It also stressed the need to examine whether MFIs had violated the RBI conditions while issuing permission to them.

He recommended that the Insurance Regulatory and Development Authority (IRDA) look into the gross violations of various laws in the collection of premium, non-supply of any document to the insured person, entering the name of MFI as nominee and tying up of loans with insurance policies.

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