Governor signs Ordinance, GO issued on MFIs

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Governor signs Ordinance, GO issued on MFIs
Governor signs Ordinance, GO issued on MFIs

Governor Esl Narasimhan on Friday approved the Ordinance on MFIs, promulgated by the state government to check the arm-twisting by the loan agencies’ collection agents.

The Ordinance which, inter alia, to a great extent safeguards the interests of the SHGs members and facilitates the members to secure loans twice also if they fare well and repay loans in a congenial ambiance.


Henceforth MFIs' machinery cannot visit the loanees' homes for recovery. In case of any violation, the MFIs are liable for punishment.

Mr Narasimhan signed the ordinance and promulgated it with immediate effect. The state government will prepare the annual report on the administration of the ordinance which shall be placed before the State Legislature. The State government has also issued a GO in respect of the Ordinance copies of which were circulated.

Addressing a crowded press conference, the Minister for Rural Development Vatti Vasantha Kumar detailed the salient features of the ordinance and said in consultation with the High Court the government is also bringing out a Fast Track Court to directly punish the MFI units in case of any violations.

The ordinance allows the borrowers, in case of any problem or any untoward incident occurring, to complain against MFIs to the Project Director (PD), DRDA, who could initiate action.

The MFIs should apply to the PD for registration within 30 days specifying the villages or towns they operate, rate of interest charged, system of recovery and maintain registers in respect of accounts, staff, submit monthly statements to the registering authority - project director concerned, without whose permission, they cannot function.

   The PD is empowered to check their records periodically and without registration the MFI working can be suspended.

In the absence of registration, the MFIs, including partners and directors will be punishable for 3 years and a fine of Rs 1 lakh would be imposed. 

Mr Vasantha Kumar revealed that in case the principle amount is Rs 10,000 and the interest should not exceed the principle and the MFI should bear the amount exceeding the principal.

An amount equal or twice the amount of principal shall stand discharged and the borrower will be entitled to refund the excess amount from MFIs.

Asked about the higher rate of interest being charged, the Minister replied that it was for the RBI and Central government to decide and the State could not interfere. He also said that the Ordinance draft has been formed with the advice of best of legal luminaries.