Draft Microfinance Bill is ‘an enabler for the future'

The Draft Microfinance Bill is a welcome step, said industry members at the round-table discussion held on Tuesday.

The sector, which is facing serious concerns in the wake of the crisis in Andhra Pradesh, now believes that full compliance of the guidelines provided by the Bill will ensure flow of funds.

Despite issues that need to be sorted out, the Bill will help, stakeholders said at the round-table organised by the Federation of Karnataka Chambers of Commerce and Industry (FKCCI) and the Association of Karnataka Microfinance Institutions (AKMI).

Welcoming the Bill, Ms Achla Savyasaachi, Vice-President, Sa-Dhan, pointed out that the Bill is forward looking as “the legislations would be an enabler for the future, as it also looks at including customer savings/deposits in the future”.

Unlike the Malegam Committee, which had no industry representation, the Microfinance Bill Drafting Committee had representatives from the sector, she said. “Similarly, the sector would be benefited if the industry is represented at other Central and State committees too.”

The RBI will now be responsible for developing sector-specific laws, she explained, while regulation could be given to another independent body.

Another important issue that was discussed is the flow of funds into the sector, which is now strapped for cash.

Mr Aloysius Fernandez, Chairman, AKMI, said that finance must flow into the sector, and should not be stopped for regulations to be formulated. Much of the problems faced by the sector today was due to a lack of regulation, he said.

“If guidelines are not complied with fully, funding will not be available to the sector. Banks have now started providing fresh loans to us,” said Mr Samit Ghosh, Managing Director, Ujjivan Financial Services, a Bangalore-based MFI.

According to Mr K.R. Ramamoorthy, former CMD, Corporation Bank and ING Vysya Bank, it is important to have regulatory and supervisory preparedness. He stressed the need for getting ready a regulatory preparedness document. While thrift was welcome, consumer protection in the sector was also important, he said.

Speaking at the event, Mr Venkatraman, General Manager, Syndicate Bank, said that established bodies in the sector should start self-regulatory initiative, “which will help banks to be a little more pragmatic”. It was multiple lending that led customers to a debt trap, which has to be seriously looked into. The idea of the Bill was prudential regulation, he pointed out.

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