The state government, which promised to rein in unscrupulous micro-finance institutions, has instead given them a bonanza of sorts by deciding to implement the system of credit swapping.
Chief minister K. Rosaiah and rural development minister V. Vasanth Kumar said that public sector banks would be asked take over the loans availed from MFIs to mitigate the troubles of poor borrowers.
The state government has taken a leaf from the Siricilla credit swapping model wherein public sector banks were asked to take over the loans availed by weavers from private moneylenders in the backdrop of surge of suicides.
At first sight, the decision looks pro-people. But in actuality, it will only help MFIs which have been harassing borrowers driving many of them to suicide. For one, MFIs will get back their entire money along with interest without incurring any expense in collection.
Banks, on the other hand, would have to shell out a whopping Rs 9,600 crore to take over then loans. They would also have to cater to the high interest rates charged by MFIs while charging only permissible interest rate themselves.
Bank officials, who are not amused, also cautioned that if they are forced to take over MFI loans this year, the original bank linkage in the form of Pavala Vaddi and SHG tie up will get affected resulting in total collapse of self help group movement in the state. At present banks are giving Rs 7,200 crore linkage to about one crore SHG women in the state.
The government decision comes in the context of widespread public anger against MFIs which have been using highhanded methods to recover loans from poor people.