Presentation on Micro Finance Institutions

(Development & Regulation) Bill, 2012

by M R Umarji

Basic Issue involved

• If MFIs are money-lenders how can Parliament make the proposed law?

Answers

• PRE-AMBLE of the Bill refers to MFIs as entities providing credit, thrift and other micro finance services

• Definition of Micro Finance Services also includes above services in addition to remittance of funds and pension and insurance services.

• Money lenders do not provide above services and hence MFIs are different and not money lenders.

Scheme of RBI for lending to MFIs

• RBI has formulated a scheme for lending by banks to MFIs for on- lending to SHGs

• Total amount disbursed by Banks to MFIs

• ₹ 7605 crores during 2010-11

• There are no such schemes for money-lenders

Regulation of NBFCs engaged in Micro Finance

Business• If a Company is engaged in Micro Finance

Business it has to obtain registration from RBI under the RBI Act, 1934.

• Such Micro Finance Companies are regulated by RBI under a Central Law on the basis that activity of lending and providing other financial services is similar to ‘Banking’.

• On the same basis non-corporate entities providing financial services are treated as NON-BANKS and are to be regulated by RBI under the new law.

Other Concerns

.Unfair debt recovery practices

Overindebtedness

Provision made in the Bill.

• RBI to have wide powers including specifying lending rates, margins, amount of loan, place of disbursement, recovery practices, etc.

• State Level Advisory Councils.

• District Advisories committee

THANK YOU