The government of the Indian state of Andhra Pradesh, where the microfinance industry has been described as experiencing a crisis, is reportedly considering new legislation to refine an ordinance that was passed in October 2010 in response to a series of suicides said to be linked to debt collector harassment. The ordinance, among other stipulations, prohibits microfinance institutions (MFIs) from requiring collateral on new loans, repossessing collateral on past due loans, or charging accrued interest in amounts over the principal amount of the loan. It would also require all MFIs to register in each of the villages and provinces in which they operate, disclosing interest rates, their system of conducting due diligence and the names of debt collectors. It also prohibits borrowers from belonging to more than one savings group and does not allow MFIs to make loans to groups that already have outstanding loans.
Since the implementation of the ordinance, MFIs have reportedly suffered from banks and investors pulling out of deals and selling shares, with collection rates dropping from a reported 95 percent to 20 percent [1].
By Diana Baide, Research Assistant
[1] Reuters. “Andhra Pradesh to consider microfinance bill on Tuesday” by Arjun Kashyap, 10 December 2010
http://in.reuters.com/article/idINIndia-53484620101210
[2] “An Ordinance to protect the women Self Help Groups from exploitation by the Micro Finance Institutions in the State of Andhra Pradesh and for the matters connected therewith or incidental thereto”
http://indiamicrofinance.com/wp-content/uploads/2010/10/Andhra-MFI-Ordinance.pdf
MicroCapital. “MICROCAPITAL BRIEF: Finance Minister of India Vows Not to Strangle Indian Microfinance” by Trevor Kwong, 23 November 2010 Industry”?https://www.microcapital.org/microcapital-brief-finance-minister-of-india-vows-not-to-strangle-indian-microfinance-industry/
MicroCapital “MICROCAPITAL BRIEF: Under Pressure from State Government of Andhra Pradesh, Indian Microfinance Institutions Agree to Cap Interest Rates at 24%” by Diana Baide, 16 November 2010
MicroCapital. “MICROCAPITAL BRIEF: India’s Microfinance Industry on Brink of ‘Collapse’ Due to Credit Freeze in State of Andhra” by Diana Baide, 15 November 2010
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