Pranab tells micro lenders to frame code of conduct

NEW DELHI: Finance minister Pranab Mukherjee said micro lenders must develop a code of conduct on interest rates and prohibit coercive recovery methods, clearly hinting that the government does not intend to regulate interest rates in the sector.

“Microfinance institutions should have a code of conduct to ensure interest rates are not high, coercive methods for recovery are not applied,” Mr Mukherjee said at the annual economic editors conference. He said the government was in talks with Nabard and RBI on recent developments. He said state governments were well within their rights to regulate lending practices.

Mr Mukherjee, however, said the Centre was in talks with the Andhra Pradesh government, which recently enacted an ordinance to govern microfinance institutions after reports of a series of suicides by indebted farmers. The industry has deemed the provision harsh and sought relief from courts.

“I have asked the state government to make some corrections to see certain harsh provisions are removed,” Mr Mukheree said. The finance minister said MFIs should follow certain prudent banking practices and lend only to those who have the capacity to pay back the loan.