Tuesday, October 5, 2010

Lok Satta wants RBI to rein in Micro finance institutions

The Lok Satta Party today demanded that the Reserve Bank of India step in immediately to ensure that micro finance institutions do not charge usurious rates of interest and resort to coercive practices for loan recovery.

In a media statement, Lok Satta Party leaders Bandaru Rammohan Rao, P. Ravi Maruth and Mrs. K. Gita Murthy pointed out that the informal credit system and micro finance institutions have been flourishing as the Government has failed to build a robust credit system.

The Union Government squandered more than Rs.70000 crore on waiving farm loans instead of utilizing it as seed money to strengthen the credit system. The loan waiver has encouraged defaults and driven money out of rural areas even as cooperative credit societies fail to rise to the occasion because of their politicization and excessive Government control.

The Lok Satta leaders said that the Government should straightway launch a drive to promote savings in considering that huge funds are flowing into rural areas because of schemes like the National Rural Employment Guarantee Scheme. It should also curb unbridled liquor consumption which is largely responsible for rural poverty and indebedness. The Union Government should allocate Rs. 100000 crore to build a robust credit system on a permanent basis.

The Lok Satta leaders conceded that micro finance institutions are fulfilling the credit requirements of the rural poor. In their absence, people will be forced to borrow at exorbitant rates of interest of 10 percent a day.

They said that micro finance institutions should not view credit as a means to generate massive profits. Going by media reports, they have been deploying musclemen to recover loans. It is tragic that micro finance institutions charge the poor a rate of interest of up to 36 percent even as banks lend funds to business and industry around 12 percent rate of interest. It is, therefore, time the RBI intervened.

1 comment:

  1. this is all good talk... but is somebody making sure this really happens?