Microfinance

RBI forms sub-committee to look into functioning of MFI’s

The Reserve Bank of India Governor, D Subbarao, yesterday announced that a sub-committee has been formed which will look into the functioning of the MFI’s, Microfinance sector, and what bearing they have on RBI policy.

The RBI Governor was in Chandigarh to attend the meeting of the Central Board of Directors of RBI. Speaking to the media , the Governor said “ I cannot comment on the nature of regulations that can be imposed on the MFIs, which are NBFC’s. 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,” . RBI sub committee

Earlier this year, the Reserve Bank of India had asked commercial banks to convince MFI’s to reduce their Interest rates to lower than 28%. As a result public sector banks have been asking their Institutional clients to reduce their Interest rates if they want to avail more loans.A large number of microfinance institutions which are registered as non profits fall outside the purview of Reserve Bank of India and thus the RBI cannot regulate their interest rates.

The Reserve Bank of India’s move has come a day after the Andhra Pradesh Cabinet approved an ordinance on Thursday, which provides for a three year jail sentence and Rs.1 Lakh penalty for those MFI’s who harass their borrowers for recovery of loans. Under the new ordinance MFI’s will be required to register themselves with a local government authority.

For more details of the ordinance visit the
Andhra Pradesh Microfinance Institutions (regulation of money lending) Ordinance, 2010

Abhay N

Author : 

Abhay is the founder and managing editor of India Microfinance. He is passionate about microfinance, financial inclusion and social entrepreneurship in India.

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