Indian Bank åö ICICI Reaches Arrangement with Provincial Government on Micro-Loan Interest Rates

ICICI bank has reached an agreement with the provincial government of Andhra Pradesh, India to cap interest rates at 15% and charge a diminishing interest rate on the loans disbursed through microfinance institutions (MFIs) in the Krishna district of the state. The revised interest rates will be charged retrospectively from April 2006. As per the terms of the agreement, the bank will also open an MFI desk and 10 rural centers in Krishna district to offer loans directly to customers. The bank will also explore the possibility of opening additional branches in other districts. The state government, in turn, has lifted the ban on MFIs loan collections at the agreed upon interest rates.

Earlier this year, the government of Andhra Pradesh, an Indian state where microcredit has witnessed rapid growth, had accused MFIs of usurious lending practices and unethical collection methods. Multiple suicides over MFI harassment were reported from five districts were reported with Krishna district being the most affected region. The government specifically charged the following MFIs åö Spandana, Asmita, Umduma Poddu Pedatha and Share Microfin of extortionate practices and subsequently, the Krishna district administration enforced temporary closure of 50 branches of these MFIs, seizure and destruction of loan records and encouraged non-payment of loans.

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