A spate of farmer suicides linked to harassment by recovery agents employed by micro finance institutions (MFIs) in Andhra Pradesh spurred the state government to bring in regulation to protect consumer interests. But, while the Bill has brought into sharp focus the need for consumer protection, it tries to micro-manage MFI operations and in the process it could scuttle some of the crucial benefits that MFIs bring to farmers, says the author of Microfinance India, State Of The Sector Report 2010. In an interview he points out that prudent regulation can ensure the original goal of the MFIS- social uplift of the poor.
Do you feel the AP Bill to regulate MFIs is well thought out? Does it ensure fairness to the borrowers and the long-term health of the sector?The AP Bill has brought into sharp focus the need for customer protection in four critical areas. First is pricing. Second is lender's liability- whether the lender can give too much loan without assessing the customer's ability to pay. Third is the structure of loan repayment - whether you can ask money on a weekly basis from people who don't produce weekly incomes. Fourth is the practices that attend to how you deal with defaults.
But the Act should have looked at the positive benefits that institutions could bring in, and where they need to be regulated in the interests of the customers. It should have brought only those features in. Say, you want the recovery practices to be consistent with what the customers can really manage. If the customer is aggrieved and complains that somebody is harassing him, then those complaints should be investigated by the District Rural Development Authority. Instead what the Bill says is that MFIs cannot go to the customer's premises to ask for recovery and that all transactions will be done in the Panchayat office.
With great difficulty, MFIs brought services to the door of people. It is such a relief for the customers not to be spending time out going to banks or Panchayat offices, which could be 10 km away in some cases. A facility which has brought some relief to people is being shut. Moreover, you are practically telling the MFI where it should do business and how it should do it.
Social responsibilities were inbuilt when the MFIs were first conceived. If MFIs go for profit with loose regulations, how are they different from moneylenders?
Even among moneylenders there are very good people who take care of the customer's circumstance, and there are really bad ones. A large number of the MFIs are good and there are some who are coercive because of the kind of prices and processes they have adopted. But Moneylenders never got this organised. They did not have such a large footprint. An MFI brought in organisation, it mobilized the equity, it brought in commercial funding. It invested in systems. It appointed a large number of people. But some of them exacted a much higher price than they should have. They wanted to break even very fast and greed did take over in some cases.
