Malegam to head RBI panel on MFIs

The Reserve Bank of India’s committee on microfinance institutions (MFIs) will examine issues of high interest rates, coercive recovery process and multiple lending practices by some MFIs, the central bank said in a statement on Tuesday.

The panel will examine this week’s ordinance in Andhra Pradesh, making it compulsory for MFIs to register with state governments. The committee, headed by Y H Malegam, a senior member on RBI’s board of directors, will give its report in three months. The RBI regulates only those MFIs registered with it as non-banking finance companies. While they form a small number of MFIs, these account for 80 per cent of the microfinance business, it said.

RBI said the committee would study the implications for its policies and the role played by MFIs in providing access to financial services to the poor and excluded. It will study the issues and concerns in this sector, including ways and means of making interest rates charged by them reasonable, it said in a statement posted on its website.

Governor D Subbarao announced the committee after a meeting of RBI’s central board in Chandigarh.

The ordinance by the Andhra Pradesh government seeks to ensure all MFIs get themselves registered with the district authorities, give it details of their credit status, number of members, employees and other areas of operation, among others. Some MFIs are concerned at the registration process and may plan to move court against the ordinance. Reports suggest some MFIs were both overcharging and using coercive tactics to recover their loans, pushing some borrowers to suicide. The finance ministry had suggested MFIs reduce their lending rates.