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Business News/ Industry / Banking/  No consensus on Mudra bank bill yet
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No consensus on Mudra bank bill yet

MFIs are against a clause in the draft of the bill that grants Mudra bank statutory status as their overseer

Currently,the Reserve Bank of India regulates the MFI. Photo: BloombergPremium
Currently,the Reserve Bank of India regulates the MFI. Photo: Bloomberg

New Delhi: Consensus on the final shape of the Micro-units Development and Refinance Agency (Mudra) bank bill that aims to give statutory status to Mudra bank as a regulator of micro finance institutions remains elusive as the MFIs, currently regulated by the Reserve Bank of India (RBI), continue to resist any such shift in regulatory oversight.

Though the first draft of the bill, prepared under the aegis of the finance ministry, has a clause that brings this shift in regulation, a final decision on this is yet to be taken by the government, said three people familiar with the development.

Mudra, announced by finance minister Arun Jaitley in his budget speech, was envisaged as an overarching regulator for the microfinance sector. But the industry wants RBI to continue regulating MFIs that are registered as non-banking financial companies (NBFCs). Self regulatory organizations such as Microfinance Institutions Network (MFIN) have informed the government of its reluctance.

The sector fears such a shift will once again destabilise it, which has barely managed to revive itself after the crisis in 2010. The Andhra Pradesh government had brought in a legislation in 2010 that enforced strict laws on MFIs in the state, effectively forcing many institutions to wind up. NBFCs, which had complied with RBI regulations including caps on profit margins, reporting to credit bureaus and following proper recovery practices, fear that a change of regulator may force these institutions to face a new set of regulations. “The bill has been drafted. A clause has been included which will bring NBFC MFIs under the ambit of Mudra. However, the government is yet to take a final call. It is always easier to delete a clause rather than including it later in the bill," said one of the above-mentioned people on condition of anonymity.

While NBFC-MFIs are currently regulated by RBI, other MFIs registered under various state society Acts—called non-governmental organization (NGO)-MFIs—are under no regulatory supervision. The centre is likely to table the Mudra bill, which will give statutory powers to Mudra bank, in the budget session of Parliament in February next year.

The concept of a unified regulator for MFIs took root after a parliamentary standing committee of finance rejected the proposed Microfinance Institutions (Development and Regulation) Bill, 2012, and asked the centre to look at an alternative unified regulator. This was done after RBI expressed its inability to regulate the entire sector and was of the view that NGO-MFIs be left in the purview of individual state governments.

While NBFC-MFIs have a 95% market share and NGO-MFIs 5%, but they are numerous and scattered across the country.

“Some kind of a balance will have to be struck between self regulatory organizations, RBI and Mudra to decide who will finally regulate what," said Mathew Titus, an industry expert. “The need for Mudra was felt because no one was handling the dialogue with the state governments where MFIs operate. There is a need to address this gap."

As of March end, MFIs had provided microcredit to more than 30.5 million customers, a 29% rise from the year-ago period. The aggregate gross loan portfolio of MFIs also rose 61% to 40,138 crore (excluding the sector’s exposure in Andhra Pradesh, which has become a non-performing portfolio) during the same period, according to data collated by MFIN.

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Published: 19 Oct 2015, 12:08 AM IST
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