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Irregularities by MFIs in AP figure in Rajya Sabha

Posted by on March 17, 2011 0 Comment

Hyderabad: The Principal Secretary, department of Rural Development has conveyed to the Centre that several irregularities committed by the Micro Finance Institutions in the State in lending to rural poor namely — multiple lending, absence of due diligence, very high interest rates, coercive recovery practices and non-transparent systems were brought to the notice of Reserve Bank of India by the State government on May 5 last year. Based on the RBI Governor’s response that the State government is the best agency for regulation of irregular practices of MFIs, the Andhra Pradesh Legislature had passed the AP Micro Finance Institutions (Regulation of Money Lending) Act 2011 regulation the MFIs in the State, he added.

The Principal Secretary conveyed this information to Mr Anil Kumar, SO (AC) DOFS Ministry of Finance when Telugu Desam MP from Warangal, Ms Gundu Sudha Rani, raised a question in the Rajya Sabha on the fraudulent practices of MFIs in Andhra Pradesh. She had asked whether it has come to the notice of the Ministry of RBI or SEBI how MFIs distribute grants to poor women, particularly in Andhra Pradesh, and make them use that money to buy shares of their company and afterwards deducting those grants from loans given to them and they are now deprived of share money.

When she asked whether it is also a fact that the Andhra Pradesh government cannot take any action as the issue falls within the purview of RBI or SEBI, the Principal Secretary informed the Centre that as per Item 30, List II of the Seventh Schedule of Constitution, regulation of money lending falls in the State list. Therefore, regulation of money lending activities by MFIs comes under the purview of State Legislature. However, certain aspects of their functioning involving issues of corporate governance, capital adequacy and so on would lie under the purview of RBI/SEBI, he added. (NSS)

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