Maharashtra Sets Up Panel To Probe Harassment By Microfinance Firms

The Maharashtra government is setting up an administrative committee to look into alleged wrongdoings and misconduct by microfinance companies in certain districts of the state.

The committee will comprise four members with the Nagpur divisional commissioner heading it, said a home department order dated April 12. The panel will also have a member each from the state’s rural development, women’s economic development and cooperation departments.

The committee will investigate the allegations of exorbitant interest rates charged by microfinance institutions (MFIs), which can range from “14 percent to 30 percent”, according to the order. The panel is also looking into allegations of microfinance companies operating in the Amravati and Nagpur region behaving in an “arrogant and insulting” manner towards their clients.

The order goes on to say that it’s been observed that the MFIs were being abusive and put pressure on clients to pay up or else their house articles would be taken away. Besides the two districts, the committee will also look at the conduct of MFIs in other areas across the state and submit its report within 60 days.

BloombergQuint had reported on the brewing crisis in the state even as the government debated forming a special investigation team to probe the matter in December. Maharashtra’s Finance Secretary V Giriraj, however, told BloombergQuint on Friday that the finance department is not handling the matter.

The microfinance industry group Microfinance Network of India issued a statement on Friday clarifying that the committee set up by the government is not a special investigation committee as mentioned in some reports and added that all MFIs under its ambit abide by the relevant laws of the land.

“It is our understanding that the committee announced by the Maharashtra government is an administrative committee and not an SIT, as an SIT is headed by the state police and the aforementioned committee is being headed by the divisional commissioner of Nagpur and not by the state police,” the statement said.

It added that the industry body ensures “responsible lending” and enforces compliance in order to protect the interests of its clients.

However, the Maharashtra government’s order puts these allegations in strict terms and somewhat signals its view of the recent events in the state. It was recorded that people had stopped paying their loans back due to political interference even as MFIs were lending excessively, according to analysts.

In August 2015, Religare Capital Markets published a report titled ‘Indian Microfinance - Crisis Brewing’, which pointed out excessive penetration of microfinance companies in some areas of the country, including Maharashtra, which was ranked among the top five states with the highest penetration levels.

“There is definite borrower overleveraging in Maharashtra and some MFIs are not actually operating according to norms,” Jindal Haria, associate director of financial institutions at India Ratings, had told BloombergQuint.