BackIndustry groups to be self regulatory bodies for NBFC-MFIs: RBI
While membership to the SRO is not mandatory, NBFC-MFIs are encouraged to voluntarily become members of at least one SRO: RBI
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Mumbai: The Reserve Bank on Tuesday said it has decided to accord recognition to industry associations as self regulatory organisations (SRO) of non-banking financial companies that are engaged in micro finance (NBFC-MFIs).
The central bank said this was done based on the recommendations made by a sub-committee under the chairmanship of Y. H. Malegam which was formed to study the issues and concerns in the micro-finance sector.
“To give effect to recommendation of sub-committee...to ensure effective monitoring of the functioning of NBFC-MFIs, their compliance with the regulations and code of conduct and in the best interest of the customers of the NBFC-MFIs, RBI has decided to accord recognition to industry associations as SRO of NBFC-MFIs," RBI said in a release.
The recognition to the SRO for the sector assumes significance in the wake of SKS Microfinance crisis in Andhra Pradesh in 2010 that had resulted in spate of suicides by borrowers due to coercive recovery practices by the lender.
RBI further said that the membership of NBFC-MFIs in the industry association/SRO will be seen by the trade, borrowers and lenders as a mark of confidence and removal from membership will be seen as having an adverse impact on the reputation of such removed NBFC-MFIs. “While membership to the SRO is not mandatory, NBFC-MFIs are encouraged to voluntarily become members of at least one SRO," RBI said.
Also, the SRO holding recognition from the RBI will have to adhere to a set of functions and responsibilities, such as formulating and administering a code of conduct. “...having a grievance and dispute redressal mechanism for the clients of NBFC-MFIs, responsibility of ensuring borrower protection and education, monitoring compliance with the regulatory framework, surveillance of the microfinance sector, training and awareness programmes for the members, Self Help Groups, and submission of its financials, including Annual Report," it added. PTI
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