Microfinance Bill goes into ‘cold storage'

The much-hyped Microfinance Institutions Bill, proposed to be introduced in Parliament, has gone into cold storage.

“For all practical purposes, the MFI Bill is not on the priority agenda of the Government. The draft work on the proposed Bill was also not fully completed… ,” a senior Finance Ministry official told Business Line .

The idea of introducing a Central law on MFIs came in the wake of the MFI (Regulation of Moneylending) Act brought in by the Andhra Pradesh Government in October 2010.

The AP Act had introduced stringent norms on MFIs, including getting the permission of Government before disbursal of fresh loans, to check multiple lending, and collection of dues only in public places.

“There is a feeling that the ground realities of the sector are now different, especially after the announcement of an MFI policy by the Reserve Bank of India early in May,” the official said.

The Finance Ministry had ‘found' overlaps in the draft Bill and the Malegam panel recommendations, which were accepted by the apex bank almost in totality.

Under RBI control

“Some grounds on which the Bill has been put on hold are the caps on interest margin and rate of interest, and the redundancy of a central law when the RBI is the sole regulator for nearly 92 per cent of NBFC-MFIs,” he added.

Further, except in Andhra Pradesh, which accounts for 30 per cent of the MFI business in the country, not many markets in other States warrant a separate central law in view of the “low” volume of business.

“Microfinance in Karnataka, for instance, is about Rs 2,000 crore while in many other States, the microfinance portfolios are lower still. So, any urgency (for legislation) is not seen by the Government of India,” he explained.

Dual regulation

There is also no ‘immediate likelihood' of the Centre interfering with the situation in Andhra Pradesh arising out of dual regulation of MFIs by the State government and the RBI, he added. The disbursal of fresh loans and collection of old dues had almost come to a halt in AP since October 2010.

The MFIs, however, feel that a central legislation is better for the industry as it would spell out rules of the game clearly.

When contacted, Mr Alok Prasad, Chief Executive Officer of Microfinance Institutions Network (MFIN), said: “Even as I speak now, the AP Govt says its law prevails over the RBI policy. Having a central legislation will solve the problem of dual regulation.”

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