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Delhi forces AP CM to go soft on Akula
S RAMA KRISHNA  Hyderabad | 31st Oct 2010

A phone call from Delhi saved Vikram Akula, founder chairman of SKS, India's biggest micro-finance institution (MFI), from arrest on 22 October by the Kurnool police under the newly promulgated AP MFI (Regulation of Money Lending) Ordinance 2010. According to information available with The Sunday Guardian, the call was made to the Andhra Pradesh Chief Minister's Office. Earlier that day, three MFI agents, M. Venkateswarlu and V. Ramesh, both of SKS, and S. Pullaiah of Spandana, were arrested at Yemmiganur for harassing borrowers, after a woman, Ammalu, lodged a complaint with the police against these agents.

Kurnool superintendent of police Ch. Srikant has sent a message to director general of police (DGP) K. Aravinda Rao seeking permission to register a case against Akula and Spandana MFI chief Padmaja Reddy. Akula is believed to have the support of Rahul Gandhi, who has in the past lauded his efforts in micro finance.

Responding to the arrest threat, Vikram Akula and Vijay Mahajan, coordinator of MFIs Network (MFIN) approached Andhra Pradesh Chief Minister K. Rosaiah and Chief Secretary S.V. Prasad and agreed to lower their interest rates from 28.87% to 22%. The MFIs also agreed to register their companies with the district rural development agencies (DRDAs). "In return, the MFI chiefs asked us not to arrest them or their field agents," a senior police officer told The Sunday Guardian.

The micro finance companies have been accused by the poor, whom they are meant to serve, of extortion in interest rates, and strong-arm tactics in recovery. "In most cases, the recovered amount exceeds the principal amount by 200-500% if instalments are delayed beyond a year," said Anthony Gyanan of SKK in Ranga Reddy district.

Chief Minister K. Rosaiah has admitted to some journalists that Union Finance Minister Pranab Mukherjee has suggested that he should soften the ordinance against the MFIs and replace it with a Bill later. "I have instructed the officials to review the harsh provisions of the ordinance. Our intention is to protect the interests of the poor, but not to kill the MFIs," Rosaiah said. Restraint is the new mantra. DGP Aravinda Rao said, "We will verify each and every complaint by borrowers before booking cases."

Later, the Union Rural Development Ministry communicated to the AP government that MFIs would be brought under NABARD (National Bank for Agriculture and Rural Development), which would finalise the guidelines to regulate their activity.

"The latest position is that we are going ahead with a Bill in the Winter Session of the Assembly next month and will incorporate in it suggestions from different quarters," AP rural development principal secretary R. Subramanyam told this newspaper. The Centre too might bring in a Bill on MFIs in the Budget session of Parliament after receiving a detailed report from the RBI.

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