The Andhra Pradesh Government is going to take serious action against microfinance insititutions (MFIs) for their coercive loan recovery means.

"The cost of funds for most MFIs will be 9-10 per cent but they are charging ridiculously high interest rates, sometimes up to 40 per cent a year," R Subramanyam, principal secretary, panchayat raj and rural development department said.

He further said that many MFIs do not perform due diligence while lending and this leads to rising defaults. "The government will press for more open disclosures from MFIs. We will write to the RBI to delicence those resorting to dubious means of finding customers or recovering the money from them," he said.

He also said that there have been inhuman cases where recovery agents have forced women into flesh trade. "These activities will not go unchallenged."

"Recovery processes would be documented and there would be an internal mechanism to identify cases of misconduct. A consumer grievance redressal system will also be in place," he said.

Of the total outstanding by MFIs which amounts to Rs. 30,000 crore, Andhra Pradesh alone contributes to 40% of the total.

Subramanyam has admitted that there have been cases of multiple lending. "Like in the National Rural Employment Guarantee Scheme, there is a need for a social audit of microfinance too," he cited.