M A I N   N E W S

RBI to form sub-committee on MFIs
Ruchika M. Khanna
Tribune News Service

Chandigarh, October 15
The surge in complaints against Micro Finance Institutions (MFIs) for charging abnormally high rates of interest and using strong arm tactics to recover loans, has now prompted the apex regulatory bank, Reserve Bank of India (RBI), to form a sub-committee to look into their functioning.

The RBI Governor, D Subbarao, today announced that this sub-committee will look into the functioning of the MFI sector, and what bearing they have on the RBI policy. The RBI Governor was in town to chair the meeting of the Central Board of Directors of RBI. “I cannot comment on the nature of regulations that can be imposed on the MFIs, which are non banking finance companies (NBFC). This sub committee will decide on how we can convince these MFIs to pass on the huge profits made by them to the borrowers by lowering their interest rates charged from borrowers,” he said. It may be noted that since a large number of MFIs fall outside the purview of RBI, the latter cannot regulate their interest rates.

The apex bank can just suggest to these institutions to lower their interest rates, for the betterment of the borrowers.

The move comes after the Andhra Pradesh Cabinet approved an ordinance yesterday to rein in these MFIs, after the hard core measures used by these institutions allegedly forced some people to commit suicide there. This ordinance calls for three year sentence and Rs 1 lakh penalty for MFIs, in case found harassing borrowers for recovery of loans. These MFIs will be required to register themselves with the state government, and the renewal of their licence would depend on their track record. “Since these institutions provide loans to the poor segment of the society, who generally do not get loans from other institutional sources, these are accorded certain benefits as to institutions doing priority sector lending. RBI can ask them to lower their interest rates if they want to accrue these benefits,” he added. It may be noted that a bill to regulate MFIs is also being prepared, which will be tabled in the Parliament, though this too may not cap the interest rates being charged.

In wake of the financial inclusion campaign of the government, and these MFIs being institutional sources of getting credit, they have become very important, especially for the urban poor and in rural areas. Like all other states, Punjab and Haryana, too, have a large concentration of MFIs, and since these prove to be an alternative to non institutional source of finance like money lenders, they have a very important role.

Subbarao agreed that if the banks were to increase their penetration and reach all unbanked areas in the hinterland, these MFIs will be forced to offer credit at cheaper rates. “We have already initiated a number of policy changes to ensure that banks can open branches in small towns and villages,” he added.