Govt making draft legislation on micro finance regulations

NEW DELHI: The Government on Monday said it is in the process of preparing draft legislation on regulating micro finance institutions and expressed hope that the bill will be tabled in the budget session of Parliament.

"I will not say it is a comprehensive legislation. Draft may look rudimentary. We are in the process of evolution," Vinod Rai, additional secretary in Finance Ministry said at a conference on micro finance.

He said micro finance movement should not be stifled by over regulation.

He said two to three years down the line the government will revisit the legislation once again, gaining from the experience of its impact on micro finance institutions.

"We will then attempt more comprehensive legislation," he said.

Rai said government's thinking on regulation over micro finance system itself has evolved a period of time.

"Government's thinking was not clear on the issue. It moulded with the experience of micro finance institutions."

He said any such legislation should protect the interests of all stakeholders of micro finance.

The additional secretary in the Finance Ministry said the demand for subsidy for micro finance institutions should be considered with a caution.

If micro finance movement continues its forward march without government crutches or subsidy, it would be sustainable in the long run, he said.

The demand for subsidy was raised by some speakers at the seminar, organised by Sa-Dhan, because micro finance institutions borrow money at 12-13 per cent interest rates from banks. Transaction and service costs are added to it before the money finally reaches the end customer.