Govt may introduce Micro-finance Bill in Budget Session

The government is likely to introduce a Bill that seeks to make it mandatory for all micro-finance institutions to be registered with the Reserve Bank of India in the Budget Session of Parliament.

The Finance Ministry has sent the draft Bill to the Law Ministry for approval and will subsequently seek Cabinet's nod, official sources said.

The ministry hopes to table the Bill in the upcoming Budget Session of Parliament, sources said.

The Budget Session is expected to commence in mid-March.

The draft Micro Financial Sector (Development and Regulation) Bill, 2011, circulated for public comments in July last year had proposed that the RBI will be regulator for the sector.

In an earlier Bill, it was proposed that the National Bank for Agriculture and Rural Development (Nabard) would be the regulator of the sector.

The government introduced the Micro Financial Sector Bill in the Lok Sabha in March, 2007. However, the Bill lapsed when the term of the 14th Lok Sabha expired in 2009.

The latest draft Bill proposes to make it mandatory for micro-finance institutions to be registered with the Reserve Bank and have minimum net-owned funds of Rs 5 lakh.

In addition, a Micro-Finance Development Council will be set up to advise the government on formulation of policies, schemes and other measures required in the interest of orderly growth and development of the sector and micro-finance institutions with a view to promote financial inclusion.

The council will comprise members not below the rank of Executive Director from NABARD, National Housing Bank, the RBI and SIDBI. In addition, joint secretaries from the Ministry of Finance and the Ministry of Rural Development will also be its members.

The draft Bill also proposes that any micro-finance institution which is not a company registered under the Companies Act, 1956, and which becomes a systemically important micro-finance institution shall convert its institution into a company registered under the Companies Act, 1956, with or without a licence, under Section 25 of the Act.

This should happen within six months from the date of the balance sheet that shows the MFI has become a systematically important micro-finance institution in terms of the rules prescribed by the central government, the draft Bill said.

The RBI may pass an order directing a micro-finance institution to cease and desist from carrying out micro-finance activities if it is found acting in manner prejudicial to the interest of its clients or depositors.

The Reserve Bank will cancel the certificate of registration granted to a micro-finance institution if it fails to comply with the directives or conditions, the draft Bill states.