RBI, NABARD draw guideline to regulate MFIs- Business News

RBI, NABARD to lay rules for MFIs

Finance Minister Pranab Mukherjee said the RBI and the NABARD were drawing up norms to regulate microfinance institutions.

  • New Delhi,  October 27, 2010  
  • |  
  • UPDATED   08:35 IST

Finance Minister Pranab Mukherjee on Monday said the Reserve Bank of India (RBI) and the National Bank for Agriculture and Rural Development (NABARD) were drawing up norms to regulate microfinance institutions (MFI).

However, the government expected the MFIs to follow a code of conduct on their own, he added. Mukherjee said these institutions had a crucial role to play in providing financial services to people who were not covered by regular banks.

The code of conduct that the government expects them to follow would include that they do not charge abnormally high rates of interest. The MFIs are also expected to avoid the use of coercive methods to recover loans.

Besides, they should give loans mainly for productive purposes which would go a long way in ensuring that the loan is repaid.

Loans for consumption purposes should be kept to a minimum in order to avoid defaults, the minister said. The Centre appears to be worried over the harsh measures that some of the state governments have in mind to govern MFIs as this may end up killing these institutions which have an important socio- economic role to play.

The Andhra Pradesh government has issued an ordinance in this regard and even arrested officials of SKS, a micro- finance company. Mukherjee said he had met the Andhra Pradesh chief minister and advised him some corrective steps that could be taken when the state initiates the process of converting the ordinance into legislation.

Mukherjee said that 40 per cent of the people did not have access to regular banks and the Centre had already asked banks to spread their reach to remote areas.

He said the use of technology and mobile vans would be used to reach people in habitations where it was not possible to follow the brick- and- mortar route to spread banking.

He added that the Centre has directed commercial banks to give banking facilities to habitations having populations in excess of 2,000 by March 2012 via various models and technologies, including branchless banking through business correspondents.

"The banks have formulated their roadmaps for financial inclusion and have identified about 73,000 habitations with a population of over 2,000 for providing banking facilities," he disclosed.

Courtesy: Mail Today