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Govt hopes to reach consensus on MFI regulator soon

Govt hopes to reach consensus on MFI regulator soon
PTI
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First Published: Mon, Nov 15 2010. 06 19 PM IST
Updated: Mon, Nov 15 2010. 06 19 PM IST
New Delhi: With microfinance institutions drawing flak for their strong arm tactics, the government Monday said it expects to arrive at a consensus soon on selecting a regulator for these institutions and place a bill in Parliament within three to four months.
“We expect a consensus soon (on MFI regulator) ... We expect it to be in Parliament in 3-4 months,” financial services joint secretary K V Eapen said at the Microfinance India 2010 summit.
He said the lack of a single regulator for MFIs is a matter of concern.
“In actual fact, it (lack of a regulator) is a quagmire ...The government is responsible, the RBI is responsible and the industry itself is also responsible of it,” Eapen said.
The government and the MFI sector players are in talks to find out a common ground for having a regulator.
Micro finance institutions, which lend money to those in the unorganised sector, are not regulated by any single watchdog. Those who come under the category of non-banking finance companies (NBFCs) are regulated by RBI, while others are governed by norms of the sector they fall in.
“The aspects of a regulator’s job could include a variety of things like framing proper legislation, developing proper guidelines on terms of operational issues and identifying the cost of intermediation,” Eapen said.
He also supported inclusion of MFIs as business correspondents for banks.
The government was originally supposed to bring MFI bill in this session of Parliament. But, a number of suicides by the poor in Andhra Pradesh was blamed on the functioning of MFIs and their usurious interest rates.
The state government brought in Ordinance to rein in them and asked them to register with district authorities.
Meanwhile, RBI also constituted a sub-committee to study the functioning and interest rate structures of MFIs.
This prompted the government to defer the bill so that it could incorporate the recommendations of RBI sub-panel into the bill.
Earlier there were expectations that the bill would make Nabard the regulator for MFIs.
Asked if Nabard would be ready to act as the regulator for FIs, the bank’s Chairman V C Sarangi: “When we come to it, we will see.”
He said Nabard’s exposure to MFIs in Andhra Pradesh is comparatively low.
Regarding proposals from certain quarters to put a cap on interest rates charged by MFIs, Sarangi said: “This has been discussed at length. Now there have been two opinions about this... In Bangladesh, they have introduced a cap. We need further discussion.”
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First Published: Mon, Nov 15 2010. 06 19 PM IST
More Topics: MFI | Bill | Parliament | Regulator | RBI |