The Andhra Pradesh government has urged the Centre to intervene in the matter of regulaion of microfinance institutions whose greedy lending practises in the state forced a large number of poor borrowers to commit suicide during the last six months.

In the letter to Mukherjee, the Chief Minister said the state government issued an Ordinance to regulate MFIs who resort to unethical practices like charging usurious interest rates and adopting coercive methods for recovery which caused distress among the poor resulting in a series of suicides.

Referring to ambiguity about regulation of interest rate, Rosaiah pointed out that while the RBI Governor suggested that the “state governments are the best agencies to regulate coercive interest rates, the Secretary, Banking Department, advised the state government against regulating the interest rates being charged by MFIs,”.

“Considering that the effective interest rates being charged by the MFIs range from 36 to 54 per cent, there is an urgent need to regulate this aspect too,” the Chief Minister said and requested Mukherjees guidance in the matter.

The Chief Minister while thanking the RBI Governor for constituting a sub-committee to look into the functioning of MFIs has sought issuance of clear guidelines for regulation of interest rates being charged by MFIs in their money lending activities.

Responding to Rosaiahs request, the RBI Governor informed the Chief Minister that the members of the sub-committee will call on him shortly.

Subbarao, also assured Rosaiah that the RBI will fully support the Andhra Pradesh government in arresting the malpractices of MFIs and help the poorer sections.

The RBI had on Friday set up a sub-committee to look into the functioning of the MFIs, which have drawn flak for using strong-arm tactics to recover loans from small borrowers.

Microfinancing which started as a tool for social and economic uplift for the rural poor has now turned out to be a high profit business.

The state government is handicapped in curbing the interest rates and use of force by the MFIs due to lack of clarity regarding powers of regulation.

About 50 MFIs are involved in lucrative profit making in the state lending thousands of crores to rural poor including women, artisans, daily-wage earners and agri-workers.