Mumbai: The Maharashtra government will form a special investigation team (SIT) to inquire into the operations of microfinance companies in the state, Deepak Kesarkar, minister of state for home, told the legislative assembly on Friday. It will look into complaints of irregularities and violations of Reserve Bank of India’s (RBI) guidelines by microfinance companies, the minister said, responding to question raised by Bharatiya Janata Party (BJP) legislators Milind Mane and Ashish Shelar. Both the legislators alleged that microfinance companies, particularly in Vidarbha, were resorting to coercive recovery and harassment of women of self-help groups (SHGs) for repayment.
ALSO READ | Where do microfinance firms go from here?
Explaining the decision, Kesarkar later said on the phone, “The scale of irregularities and violations being perpetrated by microfinance companies in Maharashtra was beyond the jurisdiction of the police department. So, we have decided to appoint an SIT to look into the complaints. We have not yet decided the time-frame for the investigation and the composition of the SIT. But the SIT would submit report to the state government and we will share it with regulators such as RBI and Sebi.” He said a government resolution appointing the SIT would soon be issued.
He confirmed that legislators and farm activists had pointed out serious irregularities, like disbursement of loans to more number of people than permitted and steep interest rates. “There are no official complaints of coercive recovery yet but SIT would take note if such complaints are made,” Kesarkar said.
Mane, BJP legislator from Nagpur, said around 12 microfinance companies were operating in Vidarbha alone. “They are charging rate of interests from 22% to 34% per annum and women of self-help groups are being harassed for loan recovery. I welcome the decision to appoint SIT but the government should also look at either waiving the loans extended by microfinance companies or at least restructuring the repayment at lower rate of interest. Maharashtra should also follow Andhra Pradesh to bring in a legislation that caps the rate of interest microfinance companies charge and makes their operations entirely subjected to RBI guidelines,” Mane said.
He expressed fear that the “unfair and exploitative means being deployed by microfinance companies to recover their loans could lead to women committing suicide”. “The women in Vidarbha, especially those whose husbands have committed suicide, have so far shown remarkable courage in the face of great adversities. But the means being used by the agents of microfinance companies could break their resolve and the government should be alert to this danger,” Mane said.
ALSO READ | The new hotspots of Indian microfinance
Vidarbha-based farm activist Vijay Jawandhiya, however, doubts if the investigation would achieve anything substantial. “The RBI has permitted these companies to operate. The microfinance companies claim that they are operating within the norms set by the RBI. So, what is it that the inquiry is going to achieve? Microfinance came in with the promise of loans at lower rate of interest as compared to public sector and private banks and licensed money lenders. But now even the microfinance companies are charging rates of interest which is unaffordable. Unless the government intervenes to reduce the rate of interest and also creates an alternative system that caters to the farmers, no inquiry is going to be useful,” Jawandhiya said.
He pointed out that the bigger challenges before the farmers was getting crop credit from the established banking infrastructure in the wake of demonetisation. “Banks have little liquidity to lend credit for the Rabi season. Farmers are getting cheque payment for their produce but cheques are not getting fully encashed because banks have limited currency,” Jawandhiya said.