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Friday, January 28, 2011

AP plans suicide cover, wants MFIs to foot the bill

The Andhra Pradesh government is planning a legislation that would make it mandatory for microfinance companies to pay a compensation of Rs 5 lakh to families of borrowers who commit suicide because of debt burden.
This would raise the liabilities of microfinance companies and compound their problems which they already face in slowing loan repayments after curbs on loans and recovery.

Andhra Pradesh, which accounts for nearly a third of the industry, triggered a debate on how microfinance has to be regulated when it enacted recovery and lending rules last October following suicides and unethical practices by lenders. The Reserve Bank of India appointed a committee under YH Malegam to suggest regulations, whose report was made public last week. The sector is on the verge of collapse due to wilful defaults, which the industry blames on the AP Act.

The state government was under pressure from opposition parties to offer compensation to suicide victims. The latest proposal is expected to help it pass the buck without any pressure on the exchequer, which is already finding it difficult to finance various welfare schemes. 

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