India: SC Interim Order Provides Relief to SKS Microfinance

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Mar 2013
India, March, 19 2013 - SKS can now lend to the state’s rural poor without securing a no-objection certificate from the state government. The court’s order also allows the microfinance company to recover loans on a weekly basis.

An interim order by the Supreme Court has allowed SKS Microfinance to resume microlending operations in Andhra Pradesh, said sources familiar with the development.

In October 2010, the Andhra Pradesh government had passed an ordinance (latter replaced by a law on the same lines) to curb microlending activities of private companies, following allegations these firms charged exorbitant interest rates and used coercive methods to recover loans.

The Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Ordinance, 2010, mandated every microfinance company in the state to get a no-objection certificate from the state government and co-borrowers of the self-help group to which it was lending. Microlenders were also asked to recover loans on a monthly basis, not on a weekly or fortnightly basis.

Microfinance companies say the law prevented them from carrying out businesses in the state. After the ordinance was passed, SKS had sent 74,000 applications to the state government for no-objection certificates; only 58 were approved. “It’s like they are offering us food but, at the same time, tying our hands,” said the chief executive of a microfinance company in Andhra Pradesh, on condition of anonymity. The court’s interim order, however, states SKS would have to follow certain provisions of the law, sources said. The interest payable on a loan cannot be more than the principal amount and the microlender cannot use coercive methods to recover dues.

“Microfinance companies will be happy with the judgment because these provisions are not unreasonable. This order will help SKS and, hopefully, others to resume operations in Andhra Pradesh,” said a senior executive of a microfinance company. The interim order, however, is restricted to SKS, as it was the only microlender to file a petition in the matter.

On behalf of its members, the Micro Finance Institutions Network might file a similar petition with the Supreme Court soon, sources said.

For SKS, the order is an interim one because it had sought complete abolition of the Andhra Pradesh law.

On Monday, the SKS stock closed at Rs 141.55 on the National Stock Exchange, about three per cent higher than its previous close.

 

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