The Hindu Business Line : Accredited money lenders’ proposal welcomed

Mumbai, July 24 The proposed regulation to bring money lenders into an institutional framework has been welcomed by bankers. The technical group appointed by the RBI to review the legislative framework governing money lending submitted its recommendations on Tuesday.

Money lenders can now be used to effectively extend banking services in the rural areas, said senior bankers.

Mr H.N. Sinor, Chief Executive of the Indian Banks’ Association, said the mindset of viewing money lenders with suspicion has undergone a change in the past few years.

“We welcome the move to bring money lenders into a reasonably regulated environment. If facilitators and micro-finance institutions are helping the delivery of banking services, then the money lender can also be very useful within the system since he knows people in the rural areas so well,” he said.

Fixing interest rates

Mr Sinor said the recommendation that the State Government should fix the maximum rates of interest to be charged by money lenders was a step in the right direction.

He said making money lenders a part of the “Accredited Loan Providers” would help banks increase their business. “Money lenders can work like facilitators. Banks can conduct due diligence, put them on an approved panel and conduct business through them,” he said.

According to bankers, the interest rates charged by money lenders could range between 36 per cent-50 per cent per annum.

“The real success of this experiment depends on how closely money lenders can be monitored and supervised. The recommendations have put banks under the jurisidiction of the state government and it is not completely clear how the RBI or banks will be able to dictate terms to money lenders,” said Ms Rupa Rege Nitsure, Chief Economist, Bank of Baroda.

Better governance

“The real issue is to bring better governance in different states as it has been observed that credit flows improve in states where there is good governance,” she added.

Bankers say that money lenders fulfil the need of quick credit, which banks may not be able to provide.

“However, money lenders have limited resources and a tie-up with a bank or financial institution will help them increase their business,” said a senior banker.