A Bill to regulate microfinance institutions (MFIs) was introduced in the Lok Sabha on Tuesday.
The Bill, introduced by the Finance Minister, Mr Pranab Mukherjee, seeks to empower the Reserve Bank of India to specify the maximum limit of the margin and annual percentage rate that can be charged by an MFI.
It also seeks to prohibit MFIs from carrying on the activities of micro-finance services without registration with the RBI. But existing non-banking finance companies registered with the RBI would be allowed to continue such services without registration.
The Microfinance Institutions (Development and Regulation) Bill 2012 comes with modifications to the earlier one introduced in March 2007, which had lapsed on account of the dissolution of the Lok Sabha.
The latest Bill provides for the constitution of a microfinance development council to advise the Central Government on policies, schemes and other measures required to be taken in the interest of orderly growth and development of MFIs.
State Councils
The Bill also provides for the establishment of a State Micro Finance Council in each State or for two or more States, considering the extent of microfinance activities.
The council would have to report to the Central Government on the implementation of the measures undertaken for the promotion and development of MFIs. The Bill also seeks to empower the RBI to specify sector-related benchmarks and performance standards pertaining to methods of operation, fair and reasonable methods of recovery of loan advanced by MFIs.
The RBI is also proposed to be empowered to set up a microfinance development fund to be applied for providing loans, grants or seed capital as also for training of personnel engaged in micro-finance institution services.