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  • MFIs rethink IPO plans in view of upheavals in the sector; state govt urge centre to intervene

    Published on October 17, 2010

    Worried over recent upheavals in the microfinance sector on account of high interest rates small lenders charge and their strong-arm loan recovery tactics, many players have put on hold their plans to raise funds through the capital market.

    Hyderabad-based Share Microfin, which was planning to hit the Dalal Street by fiscal end, has put on hold its initial public offering (IPO) and is consulting investment bankers on the issue, a source close to the planning of issue said.

    Spandana Spoorthy, another Hyderabad-based microfinance institution, too was expecting to come out with a public offer by April but now, reportedly, wants to change the time table.

    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.

    The state chief minister K. Rosaiah adressed letters to the Union Finance Minister Pranab Mukherjee and RBI Governor D Subba Rao on Saturday.

    Recently, microfinance institutions (MFIs) in the country have came under attack from various quarters for charging very high interest rates on loans and for their strong arm tactics for recovering money.

    The Andhra Pradesh government has issued an ordinance to rein in MFIs, whose alleged coercive tactics have recently led to a number of people committing suicides.

    Christened ‘Andhra Pradesh MicroFinance Institutions (regulation of money lending) Ordinance, 2010’, the Ordinance came into force on Friday with the Governor E S L Narasimhan giving assent to it.

    The Reserve Bank has also formed a sub-committee to look into the functioning of MFIs.

    Last month, the Finance Ministry had asked public sector banks to ensure that these institutions do not charge a loan rate above 24 per cent.

    Since MFIs take loans from banks and lend to their clients at a hefty interest rate of as much as 36 per cent, the government is now insisting that public sector lenders must ask MFIs to cap their lending rates in the range of 20-24 per cent as a precondition to access bank finance.