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special featurerecommended that : (i) Business Correspondent Modelto be implemented for expansion of banking outreach,(ii) a separate and exclusive regulatory supervisoryframework for MFIs may not be required for thepresent, as the major players undertaking micro creditare well regulated and there would be host ofdifficulties in terms of cost and outreach in bringing inlarge number of amorphous entities under a centralregulatory framework, (iii) Non-deposit taking MFIswith help of SIDBI and NABARD may attempt forself regulation (iv) setting up of national MicrofinanceInformation Bureau, (v) direct finance facilities byMFIs from NABARD, (vi) rating of MFIs (vii) capacitybuilding in MFIs, (viii) extending outreach throughICT. The Group said it may not be appropriate to fixany ceiling on interest rates. However, it cautionedthat cost of credit should not be usurious. The Groupsuggested that comprehensive regulatory frameworkmay be taken up for a review at a later stage. As a riskmitigation measure, banks may adopt a 'consortiumapproach' for proper exchange of information whilelending to MFIs. While certain recommendationsof the Khan Working Group to expand the outreachof banking in rural sector have been implemented,certain recommendations on MFI needed further study,including by the Malegam Committee in 2010.Section-VRecent developments in MFI sector and concerns forpublic policyThe Andhra Pradesh Micro Finance Institutions (Regulationof Money Lending ) Act, 2010Large-sized MFIs are operating in the state ofAndhra Pradesh. Adverse developments were reportedin the form of high interest charged by certain MFIs,coercive method of recovery, poaching of SHGsby MFIs, multiple financing by the MFIs leading toover indebtedness by the poor households etc. Inthis backdrop, Government of Andhra Pradesh, inOctober 2010, issued Andhra Pradesh Micro FinanceInstitutions (Regulation of Money Lending) Ordinance,2010 to “curb the undesirable operations of MFIs”in the state. State of Andhra Pradesh passed AndhraPradesh Micro Finance Institutions (Regulation ofMoney Lending) Act, 2010 replacing the Ordinance.The Act is applicable to NBFCs doing microfinancebusiness in the state.The Act purported to “protect women SHG from theexploitation” by MFIs in the state. The Act rolls out thefollowing :All MFIs operating in Andhra Pradesh shall within30 days apply for registration before the Registeringauthority.●Members of one SHG shall not to be member of morethan one SHG.●All loans by MFIs have to be without collateral.●Maximum amount of interest was stipulated; theaggregate interest not to exceed the principal amount.●MFIs must display the rates of interest in their premises.●No MFI shall extend further loan to an SHG where theSHG has an outstanding loan from a bank.●MFIs shall not deploy agents for the recovery.●Repayments have to be made at the office of the GramPanchayat or at a designated public place.●Loan recoveries have to be made only in monthlyinstalments.●Carrying business without registration and indulgingin coercive recovery method would attract penalty byway of imprisonment .●There was criticism against the AP Ordinance, as itwas perceived that the Act was passed in hastewithout informed public debate and consultations withthe stakeholders. Proponents of MFI viewed that it mayserve as a retrograde step in the financial sector reform.It is worth mentioning that World Microcredit AnnualReport, 2010 discusses the issue of initial publicoffering (IPO) by two microfinance institutions :Compartamos in Mexico and SKS Micro Finance inIndia. Critics worry that investors profiting from theindustry created specifically for poor may underminethe perception, objective and integrity of themicrofinance sector. In this context, Dr. MohammedYunus, the pioneer of the Grameen bank movement56October - December 2011The Journal of Indian Institute of Banking & Finance