The Congress is in power both at the Centre and in Andhra Pradesh but its governments are not on the same page on the issue of the micro-finance institutions (MFIs) aimed to finance the small borrowers as a tussle goes on between them on controlling them.

Incidents of senior officials from Union Ministry of Finance from Delhi constantly in touch with Chief Secretary, Senior secretaries to Andhra Govt to direct them to go slow in brining out the terms and conditions of the MFI act passed by andhra assembly.

The Centre is upset that Chief Minister Kiran Reddy went ahead getting the Assembly's nod on the Micro-Finance Institution (Regulation of money lenders) Bill against the advice of Finance Minister Pranab Mukherjee on serious implications of the Ordinance on the subject his predecessor Rossaiah had brought.

During his visit to Delhi, Kiran Kumar Reddy pleaded with Pranab Mukherjee not to insist certain relaxation in MFI act as passed by Andhra assembly.

In New  Delhi, the top political leadership Prime Minister, Finance Minister, Deputy Chairman Planning Commission and Rahul Gandhi are not for regressive actions against MFIs in Andhra Pradesh.

Reddy is not even prepared to wait for the report of the Malegam committee constituted by the Reserve Bank of India in October on the whole aspect of regulating the MFIs. The committee report is expected next week.

The MFIs are promoted across the country to take care of the small loan needs of people in the distant villages where the banks do not exist and protect them from exploitation by the money lenders. The Reserve Bank of India (RBI) grants them registration.

There are just 44 such registered MFIs in Andhra Pradesh, but there are hundreds who are masquerading as MFIs with patronage of both ruling and opposition politicians to fleece the poor villagers charging hefty 30-50 per cent interest and resorting to coercive methods for recoveries.

It is this compulsion of Reddy that he is hell bent to implement the new law requiring compulsory registration of the MFIs that got the governor's assent last week to put in check these unscrupulous money lenders whose methods of loans and recoveries have led to some 200 suicides in the recent months.

The Finance Ministry has, however, advised the Andhra Pradesh administration to go slow with implementation of the law as it would not only bring to halt the MFIs but also hit the banking institutions from which they had borrowed. It even suggested a bunch of Dos and Don'ts if the Act is implemented.

Better if the state government holds on for a while as the RBI is already in the process of formulating rules and just awaiting report of the Malegam committee expected by the next week on a new framework for the MFIs, the ministry stressed. The committee has in its draft report sought to fix an upper ceiling on the interest charged by these institutions.

The ministry officials point out how the Ordinance has already led to the MFIs in financial soup as the borrowers stopped repaying loans since it prohibits issue of loans or making any recovery until the institution gets itself duly registered with the state authorities.

The Centre's concern is that too much bureaucratisation being attempted by the Andhra Pradesh Government will kill the MFIs and hit the small borrowers are able to get money today without any kind of documentation. You don't expect a borrower in a small village to produce security and photocopies of documents to get the temporary loan to tide over the immediate need, a Finance Ministry official said.

The state government is, however, stressing that its new law is only to protect the people from unscrupulous MFIs and money lenders as it specifically prohibits any security, pawn or pledge taken for advancing the loan, requires display of the interest rate, bars recovery of interest in excess of the principal loan amount, and requires submission of monthly statement of business.

Those in the micro-finance business, however, point out that the law prohibits additional loan to a borrower and this has badly impacted the Andhra MFIs as the borrowers used to the multiple loans stopped repaying on learning that they won't get more loans.

Meanwhile the Malegam Committee finalising its recommendations for submission to the RBI next week wants all for-profit MFIs brought under the recommended RBI regulations that are expected not to be as harsh as in case of the rules for the banking industry.

The committee also wants the MFIs that operate as non-banking financial companies (NBFCs) to provide a threadbare calculation of their cost of operations, including cost of funds and the spread, or the difference between what they spend on mobilising money and what they earn deploying the money in the form of tiny loans.

This committee headed by noted chartered accountant Y.H. Malegam was set up by the RBI in October following the turmoil in Andhra microfinance sector and its members included Kumar Mangalam Birla, Shashi Rajagopalan and U.R. Rao.