Microfinance industry hopes renewed for Bill

Written by fe Bureau | Updated: Mar 17 2012, 08:54am hrs
The microfinance industry looks like one happy place to be after finance minister Pranab Mukherjee showed his commitment to the much awaited Micro Finance Bill. The industry hopes that it would be passed in this session of the Parliament and a new law would be introduced for the regulation of micro finance companies.

The microfinance industry had been eagerly awaiting the introduction of the MF Bill in Parliament. We are very pleased that the finance minister committed to move the the Bill, notwithstanding the very heavy legislative agenda before the government, said Alok Prasad, CEO, Micro Finance Institutions Network (MFIN).

The Bill provides for a comprehensive regulatory framework for the MF sector and puts the RBI firmly in charge of all types of MFIs, irrespective of their legal form. It also has a strong client protection orientation that ought to substantially address the concerns raised by key stakeholders from time to time. From an MF industry standpoint, what is now critical is that the Bill quickly gets passed by the Parliament. This will ensure that the current situation of regulatory duality gets mitigated and the industry grows within a well defined framework of law, he added.

When asked if the MFI Act will override the AP MFI Act, he said, Given our federal structure, in the event of a conflict between a central law and a state law, it is the Supreme Court that decides which law will prevail. I would hope that the AP government will repeal the state law once the central MF law has been enacted. However, if that is not done, the matter will need to get settled by the Supreme Court, he said.

On a similar note, Dilli Raj, CFO, SKS Microfinance, said once the MFI Bill is passed, it will override the AP MFI Act. This will help the company to resume incremental lending and collection in Andhra Pradesh, which is currently being restricted by the AP MFI Act. The RBI notification for a comprehensive regulatory framework on December 2, 2011, has brought in much needed regulatory clarity as far as the non-Andhra Pradesh states are concerned. However, in AP, the APMFI Act still rules and co-exists with the RBI norms, Dilli Raj said.

About R7,000 crore has been written off in AP and over 9.2 million borrowers have become defaulters in the state.