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MFIs: Uniform framework to create level playing field

MFIN, the association for microfinance entities and the self-regulatory organization for NBFC-MFIs, said an uniform regulation across entities will help in sustainable growth of microfinance in India.

The RBI has sent a very strong message that it is only the central bank which will frame guidelines for all the players in the industry, a state government has no role to play here
The RBI has sent a very strong message that it is only the central bank which will frame guidelines for all the players in the industry, a state government has no role to play here

With the Reserve Bank of India (RBI) planing to come out with a consultative document harmonising the regulatory frameworks for various players in the microfinance space, lenders on Friday said a uniform framework is expected to create a “level playing field” for all and help the sector mitigate the risk of being regulated by any state law.

Significantly, the move to create the uniform framework came against the backdrop of the Assam Assembly passing the Assam Micro Finance Institutions (Regulation of Money Lending) Bill, 2020 in December for controlling operations of the MFIs. Following that, collection efficiencies of microfinance lenders fell sharply.

“Recently, the Reserve Bank has released a discussion paper on Revised Regulatory Framework for NBFCs – A Scale Based Approach. Taking into consideration the constantly evolving milieu in the financial sector, it is proposed to review the regulatory framework for non-banking financial company – micro finance institutions (NBFC-MFIs),” the RBI said.

“There is a case for having a framework which is uniformly applicable to all regulated lenders in the microfinance space including scheduled commercial banks, small finance banks and NBFC-investment and credit companies, rather than prescribing these guidelines for NBFC-MFIs alone. Accordingly, the RBI will come out with a consultative document harmonising the regulatory frameworks for various regulated lenders in the microfinance space in March 2021,” the central bank said.

“RBI’s step to harmonise the regulatory framework for the microfinance industry will deter any state government from passing a Bill to regulate microfinance players. The RBI has sent a very strong message that it is only the central bank which will frame guidelines for all the players in the industry, a state government has no role to play here,” industry sources told FE.

MFIN, the association for microfinance entities and the self-regulatory organization for NBFC-MFIs, said an uniform regulation across entities will help in sustainable growth of microfinance in India. “Considering the diversity of players in microfinance today, it is the need of the hour and MFIN has been proactively working on this through its code of responsible lending and also requesting RBI on the need for asset class-based regulation,” said CEO & director Alok Misra.

“Since over a decade has passed since the Malegam Committee on microfinance, a fresh and comprehensive review of the sector will certainly be a timely and relevant initiative towards harmonising the regulatory framework for the industry for various kinds of entities that can be followed uniformly across the country…, Bandhan Bank MD & CEO Chandra Shekhar Ghosh said.

Sa-Dhan executive director P Satish said hopefully, the harmonised regulation will have common lending norms for all lenders and will enhance the client protection.

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