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Borrowers of MFI challenge HC order

Borrowers of MFI challenge HC order
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Nine borrowers of microfinance institutions (MFIs) in Medak and Warangal districts of Andhra Pradesh filed a petition in the Supreme Court in early May 2013 challenging a state high court order.

In February 2013, the Andhra Pradesh high court asked the state government to review a law that restricted multiple lending by MFIs to the same borrower.

The court gave this direction in response to a petition filed by MFIs in the state against a controversial law introduced by the Andhra Pradesh government in 2010, which made government approval mandatory for every second loan extended to an existing borrower.

The law also lengthened the loan repayment cycle from every week to every month and disallowed MFIs from approaching borrowersÂ’ homes.

The law was introduced in October 2010 following reports that coercive loan recovery methods adopted by some MFIs were prompting over-extended borrowers to kill themselves.

The petition filed in the Supreme Court by the borrowers may be heard in the first week of August. The plea challenged the February order of Andhra Pradesh high court on the grounds that the court did not look at the merits of the case but merely disposed of the petition despite the importance of the matter.

It has also questioned the high court for overlooking the contention of the Reserve Bank of India (RBI) that the state law could make for dual regulation of NBFCs.

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