Centre mulls to involve MFIs in poverty reduction programmes

Centre mulls to involve MFIs in poverty reduction programmes

Hyderabad: Facing rough weather for adopting “illegal" business practices in Andhra Pradesh, MFIs are now trying to ‘legitimise’ their activities by seeking to join hands with the state government to provide “sustainable financial services to poor women" even as union finance ministry is said to be keen on involving money lending agencies in anti-poverty programmes.

Though the Centre has not taken a formal decision in this regard yet, it has informally sounded the state governments on this, days before the current controversy involving the Micro Finance Institutions (MFIs) broke out in Andhra Pradesh, highly-placed official sources said in Hyderabad.

“In fact, such a proposal first came from the external funding agencies like World Bank and International Fund for Agricultural Development (IFAD). The World Bank and the IFAD recommended to the states, which have been borrowing money from them, to involve MFIs in poverty reduction programmes. The Centre is probably trying to implement the World Bank agenda," a top bureaucrat pointed out.

But, IAS officer V P Jauhari, who retired as special chief secretary to government and led an inquiry into the activities of MFIs in the state, cautioned in his report against involving MFIs in government programmes.

In fact, he suggested that the state government alert the Centre as well as the Reserve Bank of India about the “illegal and unethical practices" being adopted by MFIs.

“This will help other states learn from the sad experiences of Andhra," he added.

It was during former CM Y S Rajasekhara Reddy’s tenure a couple of years ago that the World Bank first came up with the proposal when the state government was desperately seeking funds from the Bank for the ambitious Jalayagnam (irrigation projects) programme.

“Andhra Pradesh is one of the major borrowers from the World Bank. One of the recommendations, apart from a few pre-conditions of the World Bank, was enhancing the role of MFIs in rural credit distribution and their involvement in government programmes.

Though the government did not concede the demand immediately for involving the MFIs in its programmes, it did help them expand their operations rapidly in the last few years," the bureaucrat said.

MFIs network president Vijay Mahajan wrote a letter to the state principal secretary (rural development) R Subrahmanyam to this effect promising to “extend all cooperation to the Andhra government’s efforts to provide credit to rural poor women."

One of the proposals mooted by the MFIN is establishment of a state-wide health insurance programme in concert with the state government’s Society for Elimination of Rural Poverty.

“This programme will be complementary to the Rajiv Aarogyasri Health Insurance Scheme (of the state government)," Mahajan said in the letter.

Official sources said the government has not yet taken a decision in this regard. “We are considering the proposals put forth by MFIN but our main focus now is on regulating the MFI activities and rescuing the hapless borrowers," a senior official of the Rural Development Department said.