Micro-lender among those accused of coercive loan recovery from rural poor; court asks state not to take coercive steps against firm for now
The Supreme Court has allowed SKS Microfinance Limited to resume operations in Andhra Pradesh till the case between the state government and the company is settled. SKS, the only listed microfinance company in the country, can now give loans to the rural poor without securing a no-objection certificate from the state government. But the micro-lender cannot use coercive methods to recover dues.
The order was issued by a division bench of the court while hearing an appeal filed by SKS against an order of the Andhra Pradesh High Court, dismissing its petition challenging a stringent state legislation—the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) or APMFI Act, which came into effect in December 2010. The high court issued its order in February this year. SKS had sought scrapping of the legislation.
It was two years ago that Andhra Pradesh barred SKS and all other non-banking finance companies (NBFCs) and microfinance institutions (MFIs) from giving loans. In fact, the state government was forced to pass the legislation after a series of suicides by the poor rural borrowers, most of them illiterate adivasis and dalits, allegedly due to high interest rates and coercive recovery methods of MFIs.
As per the records of the Society for Elimination of Rural poverty (SERP) under the state government, 76 people committed suicide in the state, and these were related to microfinance debts. The first information reports (FIRs) filed by the police cite strong-arm recovery tactics of the MFIs as the main reason for the suicides. Criminal cases were registered against many companies, including SKS. The state has been one of the biggest market for MFIs. The state accounts for more than a quarter of the total MFI industry in the country. According to the state government’s figures, more than 140 microfinance companies were operating in the state.
How to recover unpaid loans
The state legislation 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 stringent legislation, the operations of MFIs came to a virtual halt in the state. MFIs alleged that they could not recover the loans from the borrowers and subsequently had to face huge resource crunch. According to the state government, the MFIs had given Rs 12,614 crore to the rural poor as loan, of which Rs 7,238 crore remains to be recovered.
The apex court has also allowed the microfinance company to recover loans on a weekly basis whereas the state law allows only monthly loan recovery. For SKS, the Supreme Court’s order will now override the APMFI Act. The interim order, however, is restricted to SKS alone, as it was the only micro-lender to file a petition in the matter.
Since SKS has succeeded in getting a Supreme Court ruling, though interim, favouring it, most likely other MFIs too will approach the court.
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