RBI report on MFIs loan recovery mechanism by Jan

Amid sharp criticism of microfinance institutions (MFIs) on using coercive methods for loan recovery, the Reserve Bank today said that its sub-committee will submit a report on the issue, as well as their interest rate practices, by January-end.

The Sub-Committee, headed by Y H Malegam, is to make recommendations relating to regulation of microfinance activities of NBFCs, especially with regard to issues impinging on borrowers' interests.

"A holistic view will be taken on issues relating to PSLCs (priority sector lending certificates) and bank lending to MFIs under priority sector lending after the Malegam Sub-Committee submits its report," the RBI said while announcing the second quarter monetary policy review here.
    
Currently, MFIs charge up to 34 per cent interest rate per year on loans.
    
RBI regulates only those MFIs which are registered with it as non-banking finance companies (NBFCs). Others are regulated by sectoral norms under which the MFIs fall.
   
Although the companies registered with RBI cover over 80 per cent of the microfinance business, in terms of numbers of MFI, they constitute only a small percentage.
    
The Finance Ministry is preparing a bill on regulating MFIs and has finished consultations with stakeholders to table the bill in the winter session.
    
But this has been delayed now, since the whole issue has come under a lot of controversy after a number of suicide cases were reported in Andhra Pradesh, allegedly due to coercive methods adopted by these lenders to recover money from poor borrowers.
    
This prompted the state to promulgate an ordinance to rein in MFIs and the RBI to constitute a sub-committee to look into the functioning of these lenders.