Cabinet clears Microfinance Bill

Microfinance Focus, May 11, 2012: A Bill to regulate the micro finance industry and bring the micro lenders under the purview of the Reserve Bank was approved by the Union Cabinet on Thursday.

“It (Micro Financial Sector Development and Regulation Bill, 2011,) has also been cleared,” Finance Minister Pranab Mukherjee said after the Cabinet meeting.

The Bill, which was drafted in the backdrop of problems faced by borrowers of MFIs in Andhra Pradesh and other states, would now be introduced in Parliament for consideration. The draft Bill, which was circulated for public comments in July last year, had proposed making RBI the regulator for the sector.

It would be mandatory for micro finance institutions (MFI) to be registered with the Reserve Bank and have a minimum net-owned funds of Rs 5 lakh, as per the draft.

Micro-Finance Development Council will be set up to advise the government on formulation of policies, schemes and other measures required in the interest of orderly growth and development of the sector with a view to promote financial inclusion.

The council will comprise members not below the rank of Executive Director of NABARD, National Housing Bank, the RBI and SIDBI. Joint secretaries from the Ministry of Finance and the Ministry of Rural Development will also be its members.

Any MFI, which is not a company registered under the Companies Act, 1956, and which becomes a systemically important micro-finance institution, shall convert its institution into a company registered under the Companies Act, 1956, with or without a licence, under Section 25 of the Act, as per the draft.

This should happen within six months from the date of the balance sheet that shows the MFI has become a systematically important micro-finance institution in terms of the rules prescribed by the central government, the draft Bill said.

The RBI may pass an order directing a micro finance institution to cease and desist from carrying out micro finance activities if it is found acting in manner prejudicial to the interest of its clients or depositors.

The Reserve Bank will cancel the certificate of registration granted to a micro-finance institution if it fails to comply with the directives or conditions, the draft Bill states. The government had earlier introduced the Micro Financial Sector Bill in the Lok Sabha in March, 2007. However, the Bill lapsed when the term of the 14th Lok Sabha expired in 2009.

Add a Comment

Your email address will not be published. Required fields are marked *