SKS moves SC against AP law

May 13, 2011 |

New Delhi

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May 12: SKS Microfinance on Thursday challenged in the Supreme Court the special act passed by the Andhra Pradesh government to regulate the micro finance institutions in the state after allegations that their high interest rates and strong-arm recovery methods led to suicides by the farmers.

A bench of justices Markandey Katju and Gyan Sudha Mishra issued notice to the state government, directing it to file a reply and posted the matter for hearing in the third week of July. Senior advocate Fali S. Nariman, appearing for SKS, submitted that the state government has no power to regulate the sector. The state government passed the Andhra Pradesh Micro Finance Institutions (Regulation of Money lending) Act, 2010, to ensure that it has a control over the sector. According to the petitioner, micro finance sector falls under the central list and is not a state subject on which the Andhra Pradesh government could pass any act.

SKS further submitted that the state government can regulate only the moneylending sector and not the Non Banking Finance Companies (NBFCs), which are registered by the banking sector regulator RBI. SKS also cited some recent studies on the microfinance sector and contended that it was a central subject. The Act empowers the state government to take action against the micro finance companies, if they violate provisions mentioned in the section 9 and 16 of the Act. SKS has requested the Supreme Court to immediately quash the section 10 of the Act, so that it can continue its operations in the state.

Section 10 bars the MFIs from giving loans to SHGs (self-help groups) or its members, when they alrea-dy have an outstanding loan from a bank. They are also opposing another mandatory provision, which directs them to get registered in every district, along with the details of SHGs. In such cases, MFIs will have to take prior approval from a special authority constituted under the Act by making an application.

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