A microfinance institution (MFI) run by an NGO is ruled by Kerala Money Lender Act, 1958. But a company incorporated under Companies Act is seemingly exempted after a supplementary Act was passed last year.
An MFI is far from being a money lender if one considers the manner in which it operates, said K. Padmakumar, company secretary, Esaf Microfinance.
First of all an MFI should not be called as a money lender considering the manner and way in which they operate.
The ‘Kerala Prohibition of Charging Exorbitant Interest Act, 2012’ has strict penal provisions against charging of exorbitant rates.
An MFI may find it difficult to adhere to the prescriptions listed by the Act. It enforces licensing requirements for each premise of operation.Security fee of Rs 2 lakh is required for each where lending is more than Rs 50 lakh an year.
LICENSE RENEWAL
Annual renewal of license has been made necessary as is display of a board with the word ‘money lender’ at all premises. The Act fixes an interest cap of two per cent above the rates offered by commercial banks.
The MFI would be subject to inspection and liable to submit books of accounts. Returns have to be filed with State authorities. The Act also prescribes a three-year term of imprisonment as punishment for charging exorbitant interest.
EXCESS INTEREST
This is unlike the earlier Money Lender Act under which the lender was only liable to pay the excess interest along with a penalty. Microfinance is not money lending alone and has also been recognised by the Government.
A Microfinance Bill for regulating all MFIs is under the consideration of a Parliament committee. Considering this, it is ideal if some relaxation is allowed for MFIs from these stringent norms.