Government starts consultations for enacting law for MFIs

New Delhi: Government has started consultations with all stakeholders, including state governments, for enacting a law to regulate Micro Finance Institutions (MFIs) for ensuring interests of customers.  Finance Minister Arun Jaitley also said the government is planning to off-load some shares of nationalised banks to small investors and use the funds for further expansion of banking network in the country.

"We have started the consultation process with everyone, including state governments, to prepare a new bill," he said in Lok Sabha during Question Hour.  The Finance Minister said the Micro Finance Institutions Development and Regulation Bill, 2012 was introduced in Lok  Sabha on May 22, 2012 and was referred to the Standing  Committee, which submitted its final report on February 17,  2014. 

The Committee urged the government to have wider consultations with state governments and stakeholders and bring forth a fresh legislation before Parliament. The Bill lapsed due to dissolution of Lok Sabha and shall have to be introduced fresh, he said.  Replying to a supplementary question, Jaitley said interest rate of the MFIs are decided by market factors but there are clear guidelines of the Reserve Bank of India  for strict action against violators. 

The Finance Minister said a large number of MFIs are self-help groups, around 46 per cent and many of them are being run by women.  "There is nothing wrong if we encourage such MFIs as they help small borrowers every day. However, if any MFI is involved in unfair practices, the RBI guidelines are clear on that -- there should be transparency in disbursement and recovery, he said. 

Jaitley said some of the MFIs are doing reasonably well and growing and expanding their networks fast. "Now the question is whether we will allow such self help groups to grow or regulate them and put some difficulty in  their operations. On the other hand, there is case (of unfair  practices) of a company in Andhra Pradesh," he said.   

The Minister said RBI has reported that it has not come    across any instance of an institution registered as an NBFC-MFI charging rate of interest beyond the one prescribed    by the Reserve Bank of India. The RBI has issued regulatory guidelines on July 1, 2014 containing regulatory framework for NBFC-MFIs. Further, to safeguard the interest of borrowers from NBFC-MFIs, RBI has    issued detailed guidelines on Fair Practices Code in 2008 and revised the same from time to time and the last such revision was on February 18, 2013, he said.   

Jaitley said the government has created 'India Microfinance Equity Fund (IMEF) of Rs 100 crore with SIDBI  with the primary emphasis of providing equity and quasi equity    to smaller MFIs to help them maintain growth and achieve scale    and efficiency in their operations.   

"A further allocation of Rs 200 crore has been made to the IMEF in budget. Up to March 31, 2014, an amount of Rs 126.75 crore has already been committed," he said. The Finance Minister said the main objective of the government is to ensure reach of banking services to 100 per    cent of the population from the present 58 per cent.  

"We will retain the PSU character of the nationalised banks but planning to off load some amount of shares to small investors so that the money acquired from it could be used for  expanding the banking network. Our main objective is to ensure that at least two persons in every house hold have bank accounts," he said.  Replying to another supplementary question, Jaitley said the government will try to simplify the process of opening bank accounts and see how loan could be given to people above 65 years of age.  

He said the banks have the problem of large Non Performing Assets, which needed to be looked into besides    maintaining civility in recovering the loans.  The Finance Minister said SIDBI is implementing the World Bank supported 'Scaling up Sustainable and Responsible    Microfinance Project' to be implemented over a period of five years.   

"With a view to upscaling the micro credit portfolio, SIDBI has contacted a Line of Credit of USD 300 million with the World Bank," he said.  Jaitley said the objective of the project is to scale up  access to sustainable micro finance services, particularly to clients in underserved areas of the country, through among other things, introduction of innovative financial products and festering transparency and responsible finance.  

Replying to another question, the Finance Minister said the number of bank branches in the country has increased to 1,15,077 in March 2014 from 60,220 in 1991 and average    population coverage by a branch has come down from 14,005 in    1991 to 11,046 in 2014 indicating improved banking reach in various parts of the country.  

He said micro finance institutions have also grown in the country, which has further supplemented the financial services across the country.  As per Sa-Dhan Bharat MicroFinance Report 2013, number of MFI borrowers increased to 2.80 crore in 2013 from 0.03 crore    in 2001 and the report also states that the gross loan portfolio of MFIs increased to Rs 22,338 crore in 2013 from Rs    65 crore in 2001.  "These data indicate the growth of micro finance sector over the years," he said adding there are 46 NBFC-MFIs  registered with RBI.