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UNDER STRICT VIGIL
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New Delhi, May 22: The government today brought before Parliament the much-awaited microfinance bill, which allows the RBI to regulate the sector and cap interest rates.
The Micro Finance Institutions (Development and Regulation) Bill, 2012, was introduced in the lower house of Parliament by finance minister Pranab Mukherjee, making registration and supervision by the RBI mandatory.
The bill also proposes a three-tier system of microfinance councils at the central, state and district levels, which would help to monitor microfinance institutions (MFIs) and offer policy recommendations. It prescribes a minimum capital of Rs 5 lakh.
The move to regulate the sector stems from allegations that MFIs have been charging rates as high as 60 per cent annually, which have been described as “usurious”.
MFIs came under attack in Andhra Pradesh, following debt-led suicides in the state.
Top officials said the capped rate was likely to be 26 per cent, still about 10-14 per cent higher than the rates offered by regular banks. Microfinance firms borrow from banks to lend to small borrowers in rural areas.
The bill gives the RBI rights to grant certificates of registration and cancel them, which will be tantamount to cancelling their license to operate. The RBI can also inspect accounts and impose monetary penalty for non-compliance of the provisions of the proposed legislation.
Besides capping rates, the RBI will prescribe methods of loan recovery as well as norms on governance.
The bill also provides for regulation of activities besides micro credit such as thrift, pension insurance services and remittance of funds.
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