The cabinet held a special meeting to approve the ordinance as the harassment by these institutions led to a series of suicides by more than 25 people during the last two months.
The ordinance is aimed at regulating the functioning of MFIs and to check their illegal activities to force people to repay the loans. It will be made compulsory for all MFIs to register themselves and the renewal of their registration will depend on their performance.
The cabinet meeting, chaired by Chief Minister K. Rosaiah, also decided to set up fast track courts for speedy disposal of the cases relating to MFIs.
The ordinance, however, has not touched the issue of rate of interest. Opposition parties had been demanding that the government force MFIs to bring down the high interest rates.
Official sources said the ordinance would be sent to Governor E.S.L. Narasimhan and it is expected to come into effect in a day or two.
Earlier, Rosaiah held a video conference with collectors and superintendents of police and directed them to take all possible steps to check the illegal activities of the micro-finance companies.
Taking a serious note of various incidents of harassment reported from different districts, Rosaiah underlined the need for official machinery to remain on alert and deal with such incidents with an iron hand.
A delegation of leaders of opposition parties also called on the chief minister to demand stern action against the MFIs harassing poor borrowers. Leaders of the Communist Party of India (CPI), the Communist Party of India-Marxist (CPI-M), Lok Satta, the Revolutionary Socialist Party (RSP) and Forward Bloc alleged that the harassment by the MFIs led to many borrowers committing suicide