House Finance panel set to reject Congress’ pet Microfinance Bill

Parliament’s standing committee on finance is all set to reject the Micro Finance Institutions (Development and Regulation) Bill, 2012.

The panel, in which Congress Vice-President Rahul Gandhi is also a member, in its draft report on the Bill has asked the Centre to bring a fresh legislation before Parliament after holding wider consultations with the State governments.

It said the Bill was sketchy with inadequate groundwork and failed to evolve a consensus among various stakeholders.

The Bill was part of the Congress’s reform plans for the sector. It was prepared after the Congress leadership called for strong regulation of the sector and the creation of a Micro Finance Equity Fund. Sources in the panel said even Congress members felt the Bill was not strong enough to curb the menace of private money lenders.

A Government representative of the Andhra Pradesh, where a large number of micro finance borrowers committed suicide in 2010, had deposed before the panel and said that the Bill was against the federal principles of the Constitution.

The draft report observed that the Bill failed to address key issues on microfinance in the country.

The panel, headed by veteran Bharatiya Janata Party MP Yashwant Sinha, had issues with all the major proposals in the Bill, including margin, interest-rate cap, allowing collection of thrift by micro finance institutions, enabling them to render services other than credit such as insurance, pension and the ceiling limit on credit.

The draft also points to a major contradiction between the statement of objects and reasons and the title of the Bill. It said while the former provides for promotion, development, regulation and orderly growth of MFIs, the latter is confined to their development and regulation.

Citing the Malegam committee’s findings, the draft said insistence of guarantee or security on borrowings will go against the poor borrowers. It said that by not defining terms such as financial inclusion, micro finance and poor households, the Bill indicated lack of focus on facilitating financial inclusion.

It added that the Reserve Bank of India will be burdened further if the regulation and supervision of micro finance sector is entrusted to them. The Nabard and SIDBI told the panel that they should be seen as facilitator for the sector and not as a regulator. So, it recommended the constitution of a unified and independent regulator, the Micro Finance and Development Regulatory Council, for the sector by involving the State Governments.

A panel member said the draft is unlikely to be adopted unanimously as most of the members, including Congress MPs, are against the present form of the Bill. The panel will discuss the draft in its meeting on Tuesday.

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