The Andhra Pradesh government has literally thrown up its hands over taking action against three
microfinance companies - Spandana, Share Microfin and SKS Microfin - who have allegedly siphoned off crores of rupees belonging to their women shareholders.
"The state government steps in only when there are instances of MFIs fleecing the poor for recovery of their loans and resorting to coercive tactics. We will also act against those MFIs with their abnormal rates of interest in violation of the Reserve Bank of India (RBI) guidelines. But we don't have powers to act against them if they resort to fraudulent practices to make money at the cost of the shareholders," Reddy Subrahmanyam, principal secretary, rural development, told Mail Today.
He said it was the job of the
RBI or the Securities and Exchange Board of India (Sebi) (in case of listed companies like SKS Microfin) to deal with such unethical practices by the MFIs to deprive the poor shareholders of their rightful profits. "Anyway, we will also examine whether the state government can play any role in preventing such fraud," Subrahmanyam said.
The modus operandi of these MFIs is that they distribute grants to the poor women and make them use that money to buy the shares of their company. At least 45,000 poor women, mostly from Andhra Pradesh, became the first shareholders of these three MFIs, accounting for a minimum capital of Rs 6 crore during 2002- 03.
These shareholders were organised under mutual benefit trusts (MBTs), where borrowers were grouped like a mutual fund.
The MBT would, in turn, invest the money collected from the poor women in MFIs, which were registering as non-banking financial institutions (NBFCs). In the next seven years, the value of their shares had gone up to at least Rs 1,900 crore, as the promoters of the MFI started selling shares to private equity (PE) funds at a multiple of the price they paid the women.
Instead of passing on the benefits of increased share value to the shareholders, the firms gained control over the money. The poor women shareholders had no knowledge of what invested towards their share.
Lakshmi Narasamma, a self-help group member of Lachchapet village in Medak district, said that she had paid Rs 16 per every thousand she had borrowed towards shareholder amount in 2003. She said she had borrowed to the extent of Rs 25,000 from Share, Spandana, SKS and Basix during this seven-year period. "They deducted the shareholders amount from the loan given to me, besides Rs 10 towards insurance amount and Rs 3 towards processing fee. I don't know what happened to the shareholder's money," Narasamma told Mail Today.
P. Jamuna, project manager of Society for Elimination of Rural Poverty ( SERP), a wing of the rural development department, said, " Right from the beginning, the MFIs have been looking for making profits from microcredit, which is in fact a nonprofit activity. They have transformed from NGOs into NBFCs only with the motive of making profits. Actually, they are supposed to plough back the profits made out of selling the shares into the self-help groups and expand the credit network."
Andhra Pradesh Congress Committee spokesman N. Tulasi Reddy said the government should definitely take action against the MFIs resorting to fraudulent practices like siphoning off the shareholders' money.
Telugu Desam Party legislator and spokesman P. Revanth Reddy said it appeared to be yet another major financial scandal. When contacted, SKS Microfin spokesman Atul Takle said the company had not made money from any of the shareholders.
"They continue to be the beneficiaries of the community activities which we do. We raised $410,000 and distributed among the beneficiaries. Thereafter, the SKS NGO also gave Rs 4.55 crore to them so that they could invest in the shares. At no point in time have the trusts taken any money from the member," he said.
Courtesy: Mail Today
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