Microfinance, micro manage

By Arun Madhu and Akanksha Midha, Phoenix Legal
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Microfinance is not quite so micro anymore and, as the potential to book profits from it grows, so does its potential for scandal. It is the latter that has prompted a scramble to regulate the sector.

Arun Madhu Senior associate Phoenix Legal
Arun Madhu
Senior associate
Phoenix Legal

After a failed attempt in 2007 by parliament to pass the Micro Financial Sector (Development and Regulation) Bill (MF Bill), the Andhra Pradesh government recently undertook an initiative to regulate the industry. The state had been plagued by a spate of borrower suicides that was allegedly linked to unbridled lending and strong-arm recovery tactics by microfinance institutions (MFIs). So in an attempt to keep things in check the state government on 15 October passed the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Ordinance, 2010.

This ordinance requires all MFIs in Andhra Pradesh to register with a state government-appointed authority. A majority of MFIs are non-banking financial companies (NBFCs), which are already regulated by the Reserve Bank of India (RBI). As such, the new ordinance has resulted in an overlap of jurisdictions.

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Arun Madhu is a senior associate and Akanksha Midha is an associate at Phoenix Legal in Mumbai. They can be reached at arun.madhu@phoenixlegal.in and akanksha.midha@phoenixlegal.in.

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