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Ordinance issued to regulate micro finance firms in Andhra Pradesh

Hyderabad, Oct 18, 2010 (Calcutta Tube) Andhra Pradesh Friday issued an ordinance to regulate micro finance institutions (MFIs) in the wake of a spate of suicides due to harassment to borrowers.

Governor ESL Narasimhan gave his assent to the ordinance, the draft of which was approved by the state cabinet Thursday. It provides for three years’ imprisonment and Rs.1 lakh penalty for agents or working directors of MFIs harassing the borrowers.

Rural Development Minister Vatti Vasantha Kumar told reporters that the ordinance would prove effective to check the MFIs from resorting to illegal methods to force borrowers to repay loans.

The ordinance makes it compulsory for MFIs to register themselves with rural development authorities.

The institutions will have to register within 30 days. The registration will be valid for one year and the same will be renewed only if the MFIs adhere to the rules and regulations.

It has also been made compulsory for all MFIs to display the rate of interest on their boards. This has been done in view of the complaints by borrowers that MFIs were collecting higher rates of interest than those at which they agree to provide loans.

The minister, however, said the state government had no jurisdiction over fixing the rate of interest.

He said with the issuing of the ordinance, the MFIs can’t send their agents to the houses of borrowers.

‘We will deal firmly with anybody who violates this order. He may be jailed up to three years and the registration of the MFI will be cancelled,’ the minister added.

Even as the minister made the announcement, unable to bear the harassment by an MFI, a borrower committed suicide in Warangal district.

K. Ramesh, a daily wage earner, ended his life at Venkatadripet in Station Ghanpur mandal.

More than 25 people have committed suicide due to alleged harassment by MFIs in the state during the last two months.

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