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FM hopeful of early passage of micro finance Bill

Nov 27 2012, 12:39 IST
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FM hopeful of early passage of micro finance Bill. (Reuters) FM hopeful of early passage of micro finance Bill. (Reuters)
SummaryThe Bill seeks to empower the Reserve Bank to regulate the micro finance industry.

Finance Minister P Chidambaram today said the proposed Bill on micro-finance institutions will provide adequate legislative framework for development and regulation of the sector.

The Micro Finance Institutions (Development and Regulation) Bill, 2012, is currently being scrutinised by a Parliamentary Standing Committee.

"We are hopeful that the Bill will be cleared by the Standing Committee, then brought to Parliament for passage.

"Once the bill is passed, I hope that it will provide an adequate legislative framework for the entire gamut of micro-finance services," he said at MicrofinanceIndia Summit 2012.

The Bill seeks to empower the Reserve Bank to regulate the micro finance industry and fix interest rates ceiling on loans to be provided by lenders.

The Bill, which was drafted in the backdrop of problems faced by borrowers of MFIs in Andhra Pradesh and other states, seeks for compulsory registration of MFIs with the RBI.

Stating that MFIs play an important role in financial inclusion, Chidambaram said "responsible financing by way of transparency, interest rate rationalisation, respectful

recovery procedure must be followed by micro finance institutions" are among the challenges the MFI sector face.

He asked MFIs to verify data on borrowers with credit bureau so as to avoid multiple borrowing or over indebtedness.

"I will request the micro finance sector to adapt itself to the expectation of public at large especially with regard to their code of conduct," Chidambaram said.

Micro finance -- the business of doling out small loans at high interest rates to poor people who are unable to access conventional lending instruments -- has come under intense regulatory scrutiny in the wake of an Act passed by the Andhra Pradesh government.

The Andhra Pradesh Act seeks to tighten the screws on the industry, which has allegedly been blamed for a spate of suicides in the state due to high interest rates charged by MFIs. Allegations that the use of strong-arm tactics by lenders caused the suicides also dented the MFIs' image.

The southern state accounts for nearly half of the total micro finance business in the country with major players like SKS Microfinance, Spandana Sphoorty Financial and Basix present in the state.

Chidambaram also asked the MFI sector to focus on north-eastern region, West Bengal, Bihar, Uttar Pradesh and other states which are not served or under-served by it.

He said the "financial inclusion architecture" will remain incomplete unless the micro finance is integrated into the financial services delivery system.

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