Microfin may come under Nabard's rule
The National Bank for Agriculture and Rural Development (Nabard) is likely to get powers to regulate microfinance institutions (MFIs) in the country.
By Gayatri Nayak & Preeti R Iyer, TNN |
MUMBAI: The National Bank for Agriculture and Rural Development (Nabard) is likely to get powers to regulate microfinance institutions (MFIs) in the country.
The government is expected to give Nabard the regulatory powers through its proposed bill on micro-finance, which is expected to be soon tabled in Parliament. It may be recalled that finance minister P Chidambaran had proposed to set up a legal framework for microfinance in his previous budget.
During his recent visit to India, the founder of the Grameen Bank, Muhammad Yunus, had met senior officials at RBI and placed a few proposals before the central bank. He had urged RBI to grant licences to create a new set of players, called MFI banks.
In addition, he requested the central bank to allow MFIs the right to access savings. Mr Yunus is also in favour of a cap on lending rates as the microlending should be done with the aim of lending the poor and not for profit. Ironically, the bill on microfinance excludes NBFCs, who account for almost two-thirds of the microfinance business in the country from the regulator���s jurisdiction. Of the 3,000-odd MFIs in India, which are either NGOs, co-operatives or NBFCs, the latter are only a few in number, but account for more than two-thirds of the microlending in the country.
This leaves Nabard to regulate NGO MFIs and co-operatives registered under the Mutually Aided Co-operative Societies Act, where the state government cannot interfere. Though NBFCs, which operate on commercial principles, will continue to be regulated by RBI, certain NBFCs which operate non-profit entities are exempt from registration with RBI. It is unclear as to under whose regulatory purview they would fall.
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Mathew Titus, the ED of Sa-Dhan, the umbrella organisation for MFIs, says that with the SHG-bank linkage programme accounting for almost Rs 2,500 crore worth of funds lent and the MFI model accounting for a similar amount, it is only imperative that the government seriously considers bringing this sector under stringent regulatory norms.A long standing demand by MFIs to be allowed to raise deposits may be partially met. Some MFIs are likely to be allowed to accept savings from the clients. Which means they may be allowed to tap borrowers savings, but not raise public deposits, which has been their long standing demand.
Senior banking officials said that the other argument in favour of regulation is the pace at which the sector is growing, which increases the booksize of MFIs and also raises the need for capital. Though, there is no formal central figures, it is estimated that demand for micro-finance in the country is estimated to be over Rs 1,00,000 crore.
Besides, regulation, the bill will also come out clear on the performance standards for NBFCs and also envisages
developmental role for the regulator. For instance, it may provide with cheaper funds to MFIs meeting certain
development criteria. India, along with Bangladesh, is reckoned as oneof the major successes in microfinance globally.
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