Microfinance institutions escape charge of abetting suicide of clients

Police have closed a third of the micro loans-related suicide cases in Andhra Pradesh

In 2010, Andhra Pradesh witnessed a series of suicides. These were not cases of farmers' suicides—a regular occurrence in the state which continues to be in the grip of an agrarian crisis. The victims in these cases happened to be the poorest of the poor; most of them illiterate dalits and adivasis. The first information reports (FIRs) of the police reveal that most of the suicides were due to coercive loan recovery tactics adopted by the mighty microfinance institutions (MFIs), that had given these people a few thousands of rupees as loans. Ironically, 2010 happened to be a year in which the micro finance industry registered a spectacular growth.

Who will bell the cat?

Faced with a series of suicides, the Andhra Pradesh government promulgated a stringent ordinance —The Andhra Pradesh Micro Finance Institutions (Regulation of Money lending) Ordinance on October 15, 2010. The ordinance made it mandatory for all MFIs to register with the state government and announce their interest rates and prohibited multiple lending as well as coercive loan recovery methods. After the ordinance, MFIs claimed that repayment has come down considerably and they are facing huge resource crunch. The ordinance became a full-fledged legislation on December 10, 2010. The operations of MFIs came to a virtual halt in the state.

Andhra Pradesh government argued that while banking is a Central subject, money lending is a state subject, and given the manner in which many of the MFIs operated , they were engaged in nothing but organised money lending. MFIs strongly opposed this argument.

The public outrage against MFIs and the virtual halt of MFI operations in Andhra Pradesh resulted in the Reserve Bank of India appointing a board sub-committee on 28 October, 2010 to look into the crisis. The committee was chaired by Y S Malegam, a senior member on the central board of directors of the RBI. The committee submitted its report on 20 January 2011. The report was accepted by the RBI. The Andhra Pradesh government raised strong objections to the recommendations of the committee, saying that they favour MFIs.

The finance ministry has formulated a draft legislation based on the Malegam Committee Report for making a frame work for regulating the microfinance sector. But the rural development ministry has demanded major changes in the proposed legislation, fearing that the proposed law in its current form will seriously hamper the country’s self-help group (SHG) movement. Rural development minister Jairam Ramesh has written to finance minister Pranab Mukherjee, expressing his reservations on the final draft of the proposed law. “Basically, this Bill is oriented to protect the microfinance institutions,” he said in a press conference in Mumbai on April 14.

Though finance minister Pranab Mukherjee proposed to present the Bill in Parliament during the budget session, the proposed regulation is yet to even secure a cabinet approval. The session will end around the third week of May.

'Profit from the poor'

The Andhra Pradesh Micro Finance Institutions (Regulation of Money lending) Act, 2010

Compromise formula

The big six

India has around 800 MFIs, which include firms incorporated as non-banking financial companies, non-governmental organisations and trusts. According to the Andhra Pradesh government, in 2010, 79 MFIs were operating in the rural areas and 63 in urban areas of the state. The total number of borrowers were 9.6 million. Total loan given to them: Rs 12,614 crores. Total repaid amount:Rs 6,704 crores. Amount outstanding: Rs 7,238 crores.

There were six big fast growing NBFC MFIs headquartered in the state dominating the industry: SKS, Spandana, Share, BASIX, Asmitha and Trident.

Belated efforts to help victims

Andhra Pradesh