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The proposed Microfinance Development and Regulation Bill 2011 of the Government of India could be ‘ultra vires' as it is not in line with the constitution, feels the Andhra Pradesh Government.
“A cursory reading of the Bill shows that it does not fulfil constitutional requirements for a Parliament legislation on a subject in the states' list,'' a top Govt of official told Business Line here on Friday.
The Ministry of Finance had released a draft MFI Bill on Thursday.
The draft bill had become a hot topic of discussion in the official circles, especially in the departments of rural development and finance.
The regulation of money lending is a subject in the States' list of the constitution and a Parliamentary legislation is possible only under three provisions.
According to Article 249, this can be done if the Rajya Sabha passes a special resolution with two-thirds majority.
The Union Government can take up a States' list subject if the President's rule is in force, as per Article 250.
Article 252 says this could be done on a special resolution passed by two or more States requesting the Centre to make an act.
As none of these preconditions could be met at present, the translation of MFI Bill draft into an act was a matter of ‘speculation' feel the officials.
It may be noted here that a similar bill, which was tabled in Parliament in 2005, could not be passed and expired in 2009.
GREY AREAS
Besides these concerns on constitutional provisions, the AP Government sees many ‘grey areas' in the draft.
“The concept of treating Microfinance Institutions as extensions of banks is questionable in view of the difference in profit motives,'' said Mr Reddy Subrahmanyam, Principal Secretary, Department of Rural Development, Govt of AP.
The lack of ability for on-field regulation of MFIs by the Reserve Bank of India, the reliance on self regulation and Ombudsmen might not pay off in practice, he felt.
“We will send a detailed report to the Government of India with formal opinion of the State Government soon,'' he added.
The AP Government had enacted its own MFI Act in October 2010 in the wake of allegations of excesses by recovery agents of MFIs and unreasonable interest rates.
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