The Microfinance Institutions Bill, as currently drafted, will have an adverse impact on the self-help group movement, according to the Union Rural Development Minister, Mr Jairam Ramesh.
He said that the Microfinance Institutions (Development and Regulation) Bill is oriented to protect the MFIs.
“In the process of protecting these institutions (MFIs), we should not end up destroying the SHG institutions,” Mr Ramesh said during an interaction with the media at the Nabard headoffice.
“I personally believe that the Bill is not the way forward. It has to undergo a major change. The Bill, as currently drafted, will have adverse an impact on the SHG movement in India,” he explained.
The SHG-bank linkage model of financial inclusion is aimed at empowering poor women in rural areas by delivering financial services to them in a sustainable manner.
Microfinance institutions are commercially run enterprises specialising in delivering credit to individuals and groups.
AP legislation
The MFI sector has been in the eye of a storm since 2010 when the Andhra Pradesh Government imposed restrictions on their operations through a legislation.
The State Government took this step as some borrowers committed suicide due to their inability to service loans, which were contracted at usurious rates of interest, and strong-arm recovery tactics employed by recovery agents of MFIs.
The Minister said he has expressed his reservations on the MFI Bill to the Finance Minister in writing.
“We must create an environment in which MFIs should grow. But in the desire to promote an environment for MFIs we should not end up killing the SHG movement. These are two parallel activities, parallel institutions. They are non-competing. Let us not mix them up,” he emphasised.
MFIs are not an instrument of poverty alleviation and they have been projected wrongly. “The Akulas of the world have done great disservice to their own cause by creating too much hype,” he said.
“The MFIs are instruments of delivering a variety of financial products at the time when customers want it and at interest rates they determine to be commercially profitable. There is nothing wrong with that. I'm not against MFIs. I'm all for them,” the Minister said.
Pointing out that just four States — Andhra Pradesh, Tamil Nadu, Karnataka and Kerala –— accounted for 70 per cent of the SHG movement in the country, the Minister said the movement has to spread to other bigger States including Chhattisgarh, Madhya Pradesh, Uttar Pradesh, Rajasthan, Bihar and Maharashtra.
The four Southern States together absorbed 80 per cent of the bank credit of Rs 14,500 crore given to SHGs in 2011-12. For the last two years, bank lending to SHGs has been stagnant.
To spread the SHG movement, the Minister felt that lending to women SHGs should be made an explicit target under the priority sector lending target for banks.
“What we are going to do is work out the year-wise target for the next 5 years to ensure credit flow to women SHGs for each State and somehow reflect this target as part of priority sector lending,” said Mr Jairam Ramesh.