Highlights of the Bill

• The Bill seeks to provide a statutory framework to regulate and develop the micro finance industry.

• The Reserve Bank of India (RBI) shall regulate the micro finance sector; it may set an upper limit on the lending rate and margins of Micro Finance Institutions (MFIs).

• MFIs are defined as organisations providing micro credit facilities up to Rs 5 lakh, thrift collection services, pension or insurance services, or remittance services.

• The Bill provides for the creation of councils and committees at central, state and district level to monitor the sector.

• The Bill provides for a Micro Finance Development Fund managed by RBI; proceeds from this fund can be used for loans, refinance or investment to MFIs.

• The Bill requires the RBI to create a grievance redressal mechanism.

Key Issues and Analysis

• The Bill provides safeguards against misuse of market dominance by MFIs to charge excessive rates.  It allows RBI to set upper limits on lending rates and margins.  However, there is no provision for consultation with the Competition Commission of India.

• The Bill allows MFIs to accept deposits.  Unlike banks, there is no facility for insuring customer deposits against default by MFIs.  The minimum capital requirement is also lower, though RBI may prescribe higher requirements. 

• The Development Fund for MFIs is to be managed by the RBI.  The Bill also enables regulatory powers to be delegated to NABARD.  Both these provisions could lead to conflict of interest.

• The Bill provides for the creation of micro finance committees at central, state and district levels to oversee the sector.  However, the formations of these committees are not mandatory.

• The Bill allows MFIs to provide pension and insurance services.  However, it does not provide for regulation by or coordination of RBI with the respective sector regulators.

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