The passing of the Andhra Pradesh Microfinance Institutions (Regulation of Moneylending) Act on December 15 has led to "consternation" among independent directors and many of them have resigned fearing arrest, Parekh said in a public lecture on governance at the Indian Merchants' Chamber (IMC) here.
"...the hastily recently-passed AP act of micro finance has led to consternation among independent directors of certain micro finance agencies and many of them have resigned in the last week under fear of being arrested," he said.
The AP Government moved in with a law to regulate MFIs following allegations of suicide by some borrowers in the coastal state due to pressure from collection agents of MFIs.
The legislation has led to wide scepticism among banks which lend to micro finance institutions) and a majority of them have stopped fresh loans to MFIs since an ordinance for the act was made public two months ago.
MFIN, an umbrella body of MFIs, had said repayments from borrowers in AP--the biggest MFI market in the country-- have stopped and feared a wipe-out of the once sunrise sector.
The Reserve Bank stepped-in yesterday, asking banks to continue funding MFIs in a bid to contain the problem within AP.
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