the ghost of micro-finance institutions in AP

Desaraju Surya
Hyderabad: History is repeating in Andhra Pradesh vis-à-vis the Micro-Finance Institutions (MFIs). The spectre of MFIs has come to haunt the hapless poor borrowers, particularly in the rural areas, as both the state government as well as the Centre did practically nothing in the last four years after the ghost first raised its ugly head in 2006. More than 70 persons committed suicide unable to bear the “torture” unleashed by unscrupulous MFIs in AP in 2006 while in just over a month now more than 40 people met with a similar tragic end. Official “toll” this year, however, is just 23. Be it pushing women into flesh trade, forcing them to stand in blazing sun (as punishment) for hours, humiliating them in front of other villagers or seizing ration cards and Aarogyasri health insurance cards for non-repayment of loans in time… the so-called “recovery agents” of MFIs resort to every inhuman method to intimidate the poor borrowers. “Those who could not stand this are committing suicide,” a district Collector pointed out. Same things happened in 2006 when the scale of operations of MFIs in the state was between Rs 1000 crore and Rs 1500 crore. Now, of the total Rs 30,000 crore MFIs’ outstanding in the country, Andhra Pradesh accounts for about 40 per cent. The defaults were estimated to be between one and 1.5 per cent, government sources said. It was the then Y S Rajasekhara Reddy’s government that vigorously encouraged the MFIs in the state as a means “to deliver rural credit at cheaper rates” and eventually “make every woman a lakhpathi (millionaire).” In October 2005, AICC general secretary Rahul Gandhi toured Islampur in Medak district and Medchal allegedly to promote Share Microfin. A couple of years later, Rahul visited Bhongir in Nalgonda district on behalf of SKS Microfinance, promoted by Vikram Akula.
“Rahul has close links with MFIs. As a fellow MP, I am ready for a debate with him on this,” Telugu Desam Parliamentary Party leader Nama Nageswara Rao challenged even as Chief Minister K Rosaiah shot back saying the Amethi MP has “no love” for the MFIs. At the height of the MFI crisis in 2006, Rajasekhara Reddy promised to bring in legislation putting a cap on the interest rate charged by MFIs but failed. The ball was then pushed into the Centre’s court without any effect. Also, the state government did not even act on the report of the one-man committee it appointed to probe into the excesses of MFIs. The then Special Chief Secretary to government V P Jauhari, who headed the committee, had recommended strong measures to rein in the MFIs essentially to arrest an “emerging mafia” and also protect poor borrowers from its clutches. He had cautioned that there was a possibility of “other criminal elements” entering the fray since “easy money” was involved. Going by the events unfolding over the past one month, Jauhari’s fears appear to have come true. Four years have elapsed and on July 20 this year, Union Finance Minister Pranab Mukherjee announced in Hyderabad that the Central government would soon arrive at a decision on the Bill to regulate micro finance institutions. “The Bill is under examination of the government and we shall soon arrive at a decision,” he said, when questioned about the long-pending legislation that primarily is intended to place a cap on the interest rates being charged by MFIs. Still, nothing happened on the legislation front but MFIs were back to their nefarious ways. Now, the Centre appears to be in no mood to place a cap on the interest rate charged by MFIs nor put in place an effective mechanism to strictly regulate the errant money-lending firms. The Union Finance Minister's assertions on MFIs make this clear.
Since the start of this month, one after the other poor borrowers in rural parts of AP started ending their lives unable to repay the loans on which usurious rates of interest were charged. Left with no other option, the state government hurriedly promulgated an ordinance making it mandatory for MFIs to register their activities with the respective District Rural Development Agency. But it could not place a cap on the interest rate since the subject was under the Centre’s domain, a senior official of the Rural Development Department said. In fact, state Rural Development Minister Vatti Vasantha Kumar sounded the warning bell at a meeting of the State-Level Bankers’ Committee on September 28 saying: “The exorbitant rate of interest being charged by MFIs ranging from 36 to 48 per cent is not at all an encouraging trend.” His alarm stemmed from the fact that banks lent only about Rs 1,900 crore to women self-help groups (SHGs) as against the ambitious target of Rs 11,775 crore set for the 2010-11 financial year. “Bankers are not at all positive on social-sector lending. As long as banks are not able to achieve total financial inclusion, alternative source of credit is required and thus MFIs have become a necessary evil,” a district Collector observed. How the Centre and the state governments handle this evil is anxiously watched even as reports of suicides by harassed small loan borrowers continue to come in from different parts of the state.