MFIs: MFI Development and Regulation Bill, 2011 released for comments

Ministry of Finance on Wednesday, 6th July 2011 released the Bill for comments being anxiously awaited by several stakeholders. The Bill has moved away from the Malegam Committee recommendations on several counts. First of all RBI is being proposed as the sole regulator for the sector and not the NABARD, which was earlier being touted to be the regulator for smaller MFIs while the RBI was being considered for the registered NBFCs.

The Bill does not propose any cap on interest rates, but empowers RBI to regulate the same along with other charges like processing fees, life insurance premium, etc. All MFIs will need to register with RBI. An MFI can register only if it has a net owned fund of Rs 5 lakh and may need to register as a section 25 company under certain circumstances. To ensure financial stability, MFI would need to create and  transfer cetain minimum amount to a reserve account.

RBI will have powers to order audit of an MFI, or even issue a cease and desist order. The Bill empowers the RBI to set sector-related benchmarks and specify the form in which the books of accounts are to be maintained. RBI may require MFIs (on the lines as Banks) to income-recognition norms, accounting standards, provisions for bad & doubtful debts, capital adequacy, etc.

Bill requires RBI to make rules for grievance redressal mechanism of customers of MFIs as well as create fund for helping MFIs to give loans, seed monies, etc.

Bill proposes a microfinance development council, one of two advisory bodies proposed to be set up under the bill, to set the policy agenda. “The aim of the bill is to provide protection to the borrowers and develop MFIs that will play a large role in financial inclusion,” said a finance ministry official.

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