'Need to regulate MFI rates'

The Reserve Bank of India (RBI) on Wednesday said while it was not contemplating a cap on interest rates charged by microfinance institutions (MFIs), there was a need to regulate the rates.

RBI would act on the issue after the Malegam committee submitted its report, latest by the end of January, said RBI Governor D Subbarao.

“We are not contemplating a cap on interest rates, but that is an issue on the agenda. We will take a view on it after the Malegam committee submits its report. We should not regulate the rates, but there should be some method by which MFI rates come under some discipline,” he said. The issue is likely to be discussed by the RBI board tomorrow.

A recent ordinance by the Andhra Pradesh government on regulating MFIs has put a spanner on the unabated growth of the sector over the last decade. High interest rates, lending practices and coercive recovery methods were the three issues pertaining to the sector, he said. In West Bengal, the governor advised the state government to monitor MFIs, including their activities and performance.

“We will take action on MFIs across the country after the committee submits its report,” he said. RBI last month constituted a committee under the chairmanship of Y H Malegam, a senior member of the central board of directors of RBI, for studying the way MFIs operate.

Yesterday, dismissing reports that the sector was on the verge of collapse, RBI Deputy Governor Subir Gokarn said the sector was under stress, but not threat.

“This has became a high-profile issue after the events in Andhra Pradesh,” Subbarao said.