Brinda Karat urges to fix interest rate cap for microfinance institutions

Friday, October 29, 2010, 16:33
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Microfinance Focus, Oct 29, 2010: Brinda Karat, Member of Parliament and Communist Party of India (Marxist) Polit Bureau member called on Andhra Pradesh Chief Minister K. Rosaiah, urged him to fix a cap on the interest rates charged by the MFIs. “The ordinance promulgated by the State government will not serve any purpose unless such a provision is made.”

Criticizing the Union government and the Reserve Bank for not coming to the rescue of vulnerable women who were victims of harassment by micro finance institutions (MFIs), she said that the government had not made any amendments to the MFIs Regulation Bill as suggested by the Parliamentary Standing Committee. The panel had recommended, among other things, a cap on the interest rates. The rates could not be beyond the subsidised rates at which loans were being provided to self-help groups and MFIs should not become vehicles of profits. “The macro loot in the name of micro finance should not be allowed,” Ms. Karat said.

The CPI (M) and other parties would insist that the government take steps to check the activities of MFIs in the winter session of Parliament. She lamented that banks were not bothered about their lending to the MFIs as long as they made profits. Moreover, the banks’ claim of continuing lending was not their voice, “but the language spoken at the highest echelons.”

Earlier, the Telugu Desam Party president, Mr N. Chandrababu Naidu, has also criticised the Reserve Bank of India for adopting double standards against microfinance institutions. He has reportedly charged the RBI of failing to put a proper policy on interest rates in place, resulting in the MFIs remaining unchecked.

Mr Naidu pointed out that the government has lost control on the affairs of MFIs and washed its hands off the affair by just promulgating an Ordinance. Without fixing interest rates and regulatory measures, the Ordinance would not serve any purpose, he said.

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Tags: Brinda Karat, interest rate, microfinance

2 Comments on “Brinda Karat urges to fix interest rate cap for microfinance institutions”

V.R.Verulkar wrote on 4 December, 2010, 12:45
I feel, suddenly putting a cap on interest rates charged by MFI’s as suggested will have the same adverse effect on functioning of MFI’s as happened due to imposition of ordinance in OCT’2010 by A.P. Govt. being a haste decision without studying the pros and cons of the subject matter pertaining to the economic as well as overall development of the poor people of the country which is already under process of the sub-committee appointed by RBI to study on the working of lending system of MFI’s under the Chairmanship of Mr. Y.H.Malegam.
Mohit Kasera wrote on 4 June, 2011, 15:23
I think that initiating the cap on the interest rate on the MFI’s could not be justified in any way, as the operating model of most of the MFI’s very complicated and interest cap will work as poison for the MFI industry. Having sympathy with the poor (women) is understood but u might need to look at the scenario with broader view. MFI’s and poor can not sustain in isolation and the present economic condition with higher cost of the funds in market are already eating up the margins, which questioning the sustainability of the many industry player.
What government and regulator can do is that, instead of wasting the countryman’s money in the many so called poverty alleviation schemes government should create a Central Body for Micro Finance which will work as regulator and facilitator for the industry and also work as the executioner for the central funded schemes national wide in a well professional manner.