Govt may introduce Bill to regulate microfinance sector

The government plans to introduce the Microfinance (Development & Regulation) Bill, 2010, after a Reserve Bank of India (RBI)-appointed panel submits its recommendations on the sector within three months, minister of state for finance Namo Narain Meena told the Lok Sabha today. RBI had formed a sub-committee in October to look into the functioning of microfinance institutions (MFIs).

MFIs — which mostly lend to the unorganised sector — came under the scanner for charging high interest rates and using strong-arm tactics for recovery of loans. Last week, Finance Minister Pranab Mukherjee said the government would take “appropriate measures in consultation with RBI,” on MFIs. Mukherjee also said some companies had offered to cut their rates to 20 per cent from the current 30-40 per cent.

MFIs came under the government’s scrutiny after a spate of suicides took place in Andhra Pradesh, due to alleged harassment for servicing of loans taken at exorbitant rates.

Alarmed by the suicides, the Andhra Pradesh Cabinet recently approved an ordinance that would make it mandatory for MFIs and borrowers to register with local authorities. Companies would also be required to disclose methods adopted to recover money. In September, the government had written to the public sector banks asking them to ensure that interest rates charged by these institutions were reasonable, Meena said.