Wide terms of reference for Malegam panel on MFIs

The Y H Malegam committee set up by the Reserve Bank of India to probe the way microfinance institutions (MFIs) function, and for reforms in this regard, is to have a wide ambit.

Apart from Malegam, an eminent financial expert, the others on the panel are all on RBI’s board of directors. Four of them have been named: industrialist Kumar Mangalam Birla, former space research organisation chief U R Rao, Shashi Rajagopalan, who has a background in promoting credit cooperatives and agro-processing, and K C Chakrabarty, deputy governor at the central bank.

The committee was decided on a week earlier, with the report to come in three months. RBI said it would review lending, interest rate and recovery practices in the micro finance sector that impact borrowers. It will review the definition of micro finance and the institutions to regulate finance companies engaged in this activity. It will examine the applicability of money lending legislations to finance companies. RBI has also tasked panel to recommend a mechanism to redress grievances in this regard and the conditions under which credit to MFIs can be classified as priority sector lending.

Andhra follow-up
Meanwhile, in the wake of its controversial ordinance to control MFIs, the government of Andhra Pradesh announced formation of four committees on the subject — for implementation, legal issues, capacity building and information technology use. These panels would work to improve credit flows to self-help groups (SHGs) and also put in place a system for efficient implementation of the ordinance.

The implementation committee will be responsible for receiving and clarifying queries from the new registration authority for MFIs on a daily basis, reviewing complaints from the public about MFI irregularities and checking if cases are booked on these. It will also talk to banks for improving their credit flow.

The legal committee will monitor the cases against MFIs in the high court and Supreme Court and also on those filed by MFIs against the ordinance. The capacity building panel will prepare material for educating SHG members. The IT committee will help in consolidating the database. It will also create and maintain a website for MFIs, integrating the database of SHG-bank linkage, ration cards and borrowers’ data given by MFIs, so as to arrive at an integrated database of rural and urban indebtedness.