Malegam panel fell short of expectations: AP

Andhra Pradesh government, whose controversial law to rein in micro-finance institutions had led to a serious crisis in the MFI sector, said the Reserve Bank of India appointed Malegam Committee fell short of expectations. In a letter addressed to the Reserve Bank, the AP government said the Malegam report failed to put in place an effective protection mechanism for the poor borrowers from being exploited. The AP government said the RBI panel did not attempt addressing the existing debt burden on the poor that had reached unserviceable levels at interest rates ranging from 28 to 60 per cent. Also, the suggestions of the state government for rescheduling or debt swapping of high cost debt was not heeded. The government said “no relief has been proposed by applying the interest rate cap for the outstanding loans” and the “recommendations do not cover the loans which are outstanding.” Further, the state government said the Malegam report did not make any concrete recommendations for improving credit flow from the banks directly to the poor using the self help group (SHG) mechanism that allows cheaper credit. The AP government was also of the view that self regulation didn’t work in any sector, more so where a profit motive was involved. Referring to the suggestion of RBI panel that asked the MFIs to comply with the regulations through code of conduct, the government said “the implementation mechanism proposed is very weak. Greater reliance is placed on the ability of MFI to regulate itself. Even now, such codes exist, which are never implemented.”