Finance minister Pranab Mukherjee on Friday said the union government will finalise a regulatory structure for microfinance institutions after a Reserve Bank of India-appointed committee submits its report in January.

Speaking at a function organised by the Hindustan Times in New Delhi, Mukherjee made it clear that he does not favour strangulation of the microfinance sector, even though regulation of the interest rates charged by the MFIs is needed.

''My idea is not to strangulate MFIs, but to regulate them so that the interest they charge is not exorbitant and under no circumstances should they use coercive methods for loan recovery,'' he said.

The microfinance industry has been under severe pressure after the Andhra Pradesh government promulgated an ordinance to regulate the lending practices of MFIs. Andhra Pradesh accounts for nearly 40 per cent of the microfinance market in the country.

In the wake of a spate of suicides, the state government on 15 October come out with an ordinance making it mandatory for all MFIs to register with the district registering authority. It also mandated that MFIs should increase the loan repayment period for self help groups (SHG) to 30 days as against the earlier 15 days norm.

The ordinance, which is yet to be cleared as legislation by the state assembly, was promulgated on the heels of allegations about exorbitant interest rates and coercive recovery methods by the microfinance industry.