High court interim order permits MFIs resume business in AP

High court interim order permits MFIs resume business in AP
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First Published: Fri, Oct 22 2010. 07 32 PM IST
Updated: Fri, Oct 22 2010. 07 32 PM IST
Hyderabad: Andhra Pradesh high court on Friday allowed micro finance institutions (MFIs) to resume normal business activities, providing a significant but temporary relief to the sector that has an exposure of over Rs9,000 crore loans to borrowers in AP.
Last week Andhra Pradesh government had issued an Ordinance to control micro finance institutions in the State. A division bench of the court issued interim orders following a petition filed by the sectoral self-regulatory body Micro Finance Institutions Network (Mfin) that challenged the ordinance, which has forced the MFI activities to standstill.
However, the court has directed the MFIs to register their activities with the state government within a week as per ordinance and adhere to the sections of ordinance pertaining to interest rates charged on loans and coercive recovery practices.
The ordinance prohibits MFIs from recovering interest amount more than principal amount and from resorting to coercive recovery practices.
The court will hear the matter after two weeks, the time given to the state government to file its responses to the objections raised by Mfin.
Mfin president Vijay Mahajan told reporters the top five MFIs, accounting for some 60% of total micro loans in AP, have decided to probe into the root cause of distress which has forced some poor borrowers to commit suicides. Mfin would set up a grievance cell where the borrowers can bring to its notice the incidents of debt traps owing to multiple borrowings.
The top five MFIs have agreed to restructure the loans of borrowers suffering from debt trap, where the repayment period will be extended from 50 weeks now to 75 weeks and 100 weeks if needed. However, the borrower will need to pay interest for 50 weeks and pay only the principal in the extended weeks, said Mahajan.
The top five MFIs that have agreed to restructure loans include SKS Microfinance Ltd, Spandana Spoorthy Financial Ltd, Share Microfin Ltd-Asmitha Microfin Ltd combine, Basix and Trident Microfin Pvt Ltd.
c.sukumar@livemint.com
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First Published: Fri, Oct 22 2010. 07 32 PM IST
More Topics: MFIs | High Court | Mfin | Ordinace | Micro finance |