Micro-finance Bill will bring in greater transparency: Montek

New Delhi, Jan 18 | Updated: Jan 19 2007, 05:30am hrs
The proposed Bill for the micro-finance sector would bring in greater transparency, Planning Commission deputy chairman Montek Singh Ahluwalia said on Thursday. He underlined the need to follow a code-of-conduct, in a bid to check unethical means of recovery by micro-finance institutions.

There is a concern and I am not saying that this is true for all MFIs but many organizations, engaged in lending, have resorted to unethical methods of collection, Ahluwalia said at a micro-finance seminar here. The Bill is slated to be tabled in Parliament in the forthcoming Budget session.

Reiterating the finance ministrys view that there should not be any cap on interest rate for micro-financing, he said a competitive environment was key to ensure that rates come down to a reasonable level.

Vinod Rai, secretary, financial sector (ministry of finance), pointed out that only 64% of India was covered by the formal banking channel and farmers continue to borrow from multiple sources.

Despite 64,000 bank branches in the country, we still have not been able a desirable level of financial inclusion, Rai said, adding that the government is all set to increase financial inclusion.

He said in Andhra Pradesh, which had the highest coverage of 82%, only 54% was covered by formal channels, while Kerala had a coverage of 64%, of which 96% was through formal channels.

Meghalaya, with an overall coverage of 4%, had 2% covered by formal channels, Rai added.

He pointed out that the proposed Bill would be sent to the Cabinet for approval in the next couple of days.