New Delhi: The Reserve Bank of India (RBI) said it will give its view on the Malegam Committee report on the micro finance sector by April-end.
“We are studying the recommendations of the Malegam Committee. Hopefully, by end of April the RBI should come up with its decision,” RBI governor D. Subbarao said at an IIF event here.
The RBI constituted the Malegam Committee in October last year to study the state of micro finance institutions (MFIs) in the country.
The Committee, among other things, suggested capping interest rate at 24% for MFI loans.
“MFIs have performed value added services. But over the last six months they have got into trouble,” Subbarao said.
The sector came under liquidity crunch after banks refused lending to them, following a string of farmers’ suicide cases in Andhra Pradesh and the introduction of an ordinance in the state, now passed into an Act, to regulate the MFIs operations.
They were allegedly charging interest rates of over 30%, which along with their reported coercive recovery tactics.
“Going forward there will be regulation to cover this MFI sector that is anxious to see that the regulatory norms are not as stifle as to choke the success of the sector,” the governor said.
The RBI currently regulate only those MFIs which are incorporated as non-banking financial companies (NBFCs). NBFCs account for 80 per cent of the total business of the micro finance sector.
The Malegam panel also suggested that small loans cannot exceed the ceiling of Rs25,000 and recommended creation of a separate category of NBFCs for the MFI sector.
As of 31 March, 2010, there were 1,659 MFIs availing the total credit of Rs13,955 crore from the banking system. The sector currently provides credit to over 100 million households.
The Economic Survey had asked the government to take steps to ensure borrowers understood the contract when they borrowed from micro finance institutions.