Finance Ministry considers clubbing MFI & MUDRA Bank Bills

By: and |
New Delhi | April 06, 2015 10:23 AM

The finance ministry plans to club the long-pending bill for regulation of micro-finance institutions with that of the MUDRA Bank.

finance ministry, MUDRA Bank, micro finance institutions, MFI, Reserve Bank of India, Parliament, RBI monetary policy, Narendra Modi, Narendra Modi Jan Dhan, Jan dhan yojana, Micro Units Development Refinance AgencyThe finance ministry plans to club the long-pending bill for regulation of micro-finance institutions with that of the MUDRA Bank.

The finance ministry plans to club the long-pending bill for regulation of micro-finance institutions with that of the MUDRA Bank.

“We are considering the proposal. Since the agency would already be a regulator, it makes sense to also give it statutory powers for the sector,” said a person close to the development.

At present regulation of the micro-finance institutions (MFI) is split. The Reserve Bank of India regulates those MFIs which have registered themselves as companies. The regulations of other MFIs which are essentially societies are controversial turf because of which the RBI had suggested that those should be regulated through legislation by state governments.

Once the bill is cleared by Parliament as an act the regulation of the entire sector would indirectly pass over to the finance ministry, which is at present only the implementing agency for the MUDRA Bank.

Already, the finance ministry and the RBI have differed on a number of issues including the composition of the monetary policy framework committee, public debt management agency and that of regulation of money market instruments.

Passage of the MFI bill is a key element of the financial inclusion plan of the BJP-led Central government. One element of that is the opening of bank accounts under the Prime Minister’s Jan Dhan Yojana is being steered by the RBI, while the MFIs will be controlled by the MUDRA Bank under the finance ministry. Prime Minister Narendra Modi is scheduled to launch the proposed agency with a corpus of Rs 20,000 crore on April 8.

The Micro Units Development Refinance Agency (MUDRA) Bank Bill will now give finality to the plan for regulation of the sector. As an interim measure the setting up of the bank is proceeding under the Small Industries Development Bank of India. Announced in Budget 2015-16 it aims to prioritise lending to micro enterprises. Most of them are run by members of scheduled castes and tribes and is also envisaged as the regulator for MFIs.

Regulation of MFIs had become a hot potato for the past few years as state governments like Andhra Pradesh had charged some of them with practicing of usurious standards driving their lenders to suicide at times. The state passed an act which was sought to be fine tuned by the former UPA government to regulate the Rs 28,000 crore industry in May 2012.

But the Parliamentary Standing Committee on finance after debating the Micro-finance Institutions (Development and Regulation

Bill, 2012 had rejected it and sought wider consultations instead.

“MUDRA bank would be responsible for regulating and refinancing all MFIs which are in the business of lending to micro/small business entities engaged in manufacturing, trading and services activities among others,” a finance ministry statement on March 31 noted.

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