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It is good news
that the Assam Assembly has unanimously passed the Assam Micro Finance
Institutions (Regulation of Money lending) Bill, 2020 for regulating money
lending activities of the MFIs in the state. Though came a little late than
expected, the passage of the Bill has raised hopes for protecting lakhs of
women in the state from falling into debt trap. The State Cabinet decided to
table the Bill in response to vigorous protests in five eastern Assam
districts- Dibrugarh, Golaghat, Sivasagar, Jorhat and Tinsukia demanding a halt
to MFI operations after oversupply of loans in violation of Reserve Bank of
India (RBI) guidelines led to rising defaults. Coercive recovery by MFI agents
put scores of households belonging to economically vulnerable groups to financial
stress. The Bill, after it gets the assent of the Governor and notified as an
Act, will prevent harassment of the women borrowers belonging to economically
weaker sections by MFIs for inability to pay their dues and protect them from
being charged exorbitant interest rates and coercive recovery. The State
government informed the House that the RBI insisted that the government should
consult the apex bank before passing the Bill in the House. The RBI's
intervention was unwarranted, and the State government is right in asserting
that it tantamount to transgression of the privilege of the Legislature by the
Executive. There are an estimated 27 lakh borrowers in Assam, all of them
women, who have taken loans from different MFIs. The State government has
informed the Assembly that total MFI loan outstanding in the state is to the
tune of Rs 12,000 crore.
The Bill makes it mandatory for all MFIs operating in the state to apply within 30 days from the date of notification, for registration. No loans or recovery of any loans will be made without registration under this Act. Registration will help the State government keep track of the MFIs operating in the state. Currently, the Deputy Commissioners do not have the information on the MFIs operating in their respective districts as there is no system of registration. It seeks to prohibit the MFIs from engaging the agents for physical recovery of loan. In course of the discussion on the Bill, Assam Finance and Education Minister Himanta Biswa Sarma acknowledged the allegations by many women borrowers that agents resort to coercive measures for recovery.
The House was unanimous in expressing concern over indebtedness of large number of women borrowers and harassment by MFI agents like removing and forcibly taking away household properties when a borrower is unable to pay loan instalments. The proposed Act will make coercive recovery a punishable act and says that for using coercive actions, the provisions of Code of Criminal Procedure 1973 shall apply to proceeding before a fast-track court and any person who contravenes the provision of the Act shall be punishable with imprisonment for a period of six months or with fine which may extend to Rs 10,000 or with both. One of the measures, to protect the borrowers from falling into a debt trap, proposed in the Bill is that not more than two MFIs shall lend to the same borrowers. This provision will put an end to current practice of the MFIs to push for loans by four to five MFIs even when repaying of the first two loans were still continuing. In respect of borrowers belonging to tea garden work force, the bill puts cap of Rs 30,000 on the loan amount to a permanent tea garden worker in a household with single permanent garden worker and Rs 50,000 for household with multiple earners.
The bill passed by House has a provision for moratorium by MFIs on interest payment for three months during natural calamities like flood. It also prohibits the MFIs from seeking any security from a borrower by way of pawn, pledge, or other security for the loan. After the commencement of the act, the MFIs will be barred from providing further credit to vulnerable sections like temporary and casual workers of tea gardens whose daily income is less than the prescribed minimum wage. The government will have to ensure that such economically weaker families are provided adequate grants and assistance to meet their financial requirements. The collateral-free loans provided by MFIs can play the critical role of creating household assets in rural Assam. This will be possible when the borrowers are made financial literate to utilise the loans in a manner to generate income from the asset built so that they can repay the loan and also meet household requirements. Regulated operation of the MFIs will help them overcome the problem of oversupply and rising defaults. Microfinance lending is an opportunity to strengthen the rural economy of Assam and it should not be lost in chaos resulting from unregulated lending and coercive recovery.