The Hindu Business Line : Rate cap on micro loans unlikely

The Government does not propose to cap the interest rates on loans extended by the micro-finance institutions (MFIs) to self-help groups (SHGs) or the unbanked segments of the population, a top Finance Ministry official said.

"We are more or less ready with the Bill. In the Bill, there would be no cap on interest rates", Mr Amitabh Verma, Joint Secretary, Finance Ministry said at an annual policy conference of Sa-Dhan hereon Wednesday.

The micro-finance movement is estimated to grow to about Rs 35,000 crore by 2010. The Government intends to introducc the Bill to regulate the micro-finance sector in the forthcoming budget session of Parliament.

Bill

Mr Verma also said that the Bill would give legal validity to the activity of "collection of thrift". Nabard would be designated as the regulator. All entities that are already registered with the Reserve Bank of India for carrying out micro-finance activities would not come under Nabard.

The Finance Ministry official said that the Bill would try and define micro-finance. Asked as to why there would be no cap on interest rates on lending made by MFIs to the SHGs, Mr Verma told reporters that certain quarters felt that any cap on interest rates would "drive away foreign funds" that are coming into the sector and hence the decision to refrain from placing any cap.

So far, 46 lakh SHGs have been credit-linked for a total amount of little over Rs 20,000 crore. This includes 23 lakh through the banks-MFIs-SHG route (involving Rs 12,500 crore) and another 23 lakh through the Swarnajayanthi Gram Swarojgar Yojana (involving Rs 8,500 crore).

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