New MFI bill to make RBI sole regulator, supersede old laws

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The central government bill on microfinance companies is likely to make RBI the single regulator for the sector. The bill may also supersede all existing state legislations on MFIs, reports CNBC-TV18's Gopika Gopakumar.

This new bill, which is being drafted by the finance ministry, is quite a divergent from the old bill. In fact, the old bill that is a microfinance bill of 2010, which had proposed two sets of regulators for the industry. RBI will be responsible for the NBFC MFIs and (NABARD) National Bank for Agriculture and Rural Development, which should be responsible for the non-NBFC MFIs.

However, the new bill, which was being drafted by the finance ministry has entrusted the RBI with the power to regulate all microfinance companies. Now this move will ensure a uniform regulatory framework for a sector and it will avoid any conflict of interest between regulators.

Secondly, this bill will also supersede all state government legislations including the money lending act and also the ordinance enacted by the Andhra Pradesh government. So, the bill is likely to give the role of a protector to the state governments by ensuring that the interest of the borrowers is protected.

The committee, however, is looking at the modalities on how to ensure that the government plays a role of a grievance redressal mechanism and how they should go about doing it. However, one question that arises at this point in time is whether RBI has the bandwidth and the machinery to supervise the entire microfinance sector.

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