The micro finance sector, which was mired in controversy last year over inflated lending rates, is set to come under the regulatory oversight of the Reserve Bank of India.
The Finance Ministry had put out the proposed MFI (development & regulation) bill in 2011 for public debate, which proposes to override all other laws, including legislations passed by states like Andhra Pradesh, with an aim to protect the consumers. Key proposals are:- The bill has proposed that any entity, other than banks, which provides microfinance services, would be treated as a micro finance institution (MFI) and come under the RBI's regulatory oversight.
- Every MFI will have to register with the RBI within three months of the commencement of the Act.
- The RBI will have sweeping powers to regulate lending rates and margins besides fixing prudential norms.
- The draft bill also recommends that all MFIs must create a reserve fund out of its net profit, and entrusts RBI to decide on the percentage that should be transferred to this fund every year.
- The MFI segment has been under scrutiny since October 10 when Andhra Pradesh, which reports biggest chunk of microfinance activities, decided to regulate the sector following borrower suicides because of forceful recovery methods.
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