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Roundtable on MFI Bill 2011 organized by Association of Karnataka Microfinance Institutions (AKMI) and Federation of Karnataka Chambers of Commerce and Industry (FKCCI) |
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FKCCI and AKMI recently organized a roundtable discussion on the proposed MFI Bill by the Government of India.
Experts from the microfinance sector, banking, investors, and from the government participated in the discussion, which was also attended by professionals from industry and the media.
The participants were: Bangera J R, President, FKCCI; Aloysius Fernandez , Chairman, AKMI; K.R. Ramamoorthy, Former CMD of Corporation Bank & ING-Vysya Bank ; H Prakash, Jt Dir, Rural and Panchayat Raj Dept; Alok Prasad, CEO, MFIN; Vijay Kumar, GM, Syndicate Bank; Prabha R, Ex-GM, Canara Bank; Achala Savyasachi, Vice President, Sa-Dhan; Sandeep Farias, MD, Elevar equity; K Sheshadri , Chartered Accountant; Varadarajan Krishnamurthy, Hindu Business Line; Suresh K Krishna, MD, GFSPL; Vivekanand Salimath, Chairman, IDF Financial Services and Shivashamugam K, Sr. VP, FKCCI. These experts deliberated on the key provisions of the Bill.
Ramesh Ramanathan, Chairman, Janalaxmi Financial Services moderated the discussion.
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Final Statement by AKMI and FKCCI
FKCCI and AKMI support the government’s initiative to have a comprehensive bill passed at the earliest to promote financial inclusion. This bill will give a clear direction on this critical matter of poverty alleviation and enable all the stake holders to work together under the overall supervision of the Reserve Bank of India.
The draft microfinance bill is a very positive development for the sector as it brings the sector into the ambit of organized financial services. The Bill is comprehensive and reaffirms the sectors position in defining Microfinance as extended arms of banks and financial institutions. The Bill provides for most requisite provisions for regulation of the microfinance sector.
It continues the process initiated by the Malegam Committee Report earlier this year, followed by the first set of Reserve Bank of India (RBI) regulations on May 3, 2011. Previously, MFIs were loosely regulated and operated in the twilight zone, vulnerable to ordinances or legislations like those in Andhra Pradesh last year which suffocated the entire sector in the state.
The regulations, norms & requirements set by this bill should not only cover the microfinance institutions but any organization: state government or bank led microfinance programs serving the same customers base.
AKMI welcomes the bill and it is important to galvanize support for the bill and make sure it is passed in parliament at the earliest.
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Specific feedback on the Bill provisions |
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APR-Definition
The APR has been defined as “aggregate rate consisting of interest, processing fees, service charges and any other charges or fees charged by the micro finance institution on any financial assistance granted to any client”.
The APR should contain only the interest rate & processing fee charged by MFIs. Other charges like insurance premium etc, if any levied by MFIs are not their income since they are associated with the additional services rendered. |
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Purview
Banks and Co-operatives are excluded from the purview of the bill tough they are also undertaking microfinance activities. This should be appropriately addressed in the bill. |
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Scope of Microfinance
It is mentioned that micro‐credit, thrift, remittance, pension &insurance services can be provided by MFIs. Does it mean SI-MFIs can offer saving products to their clients? If so, it is a welcome measure which facilitates MFIs to have access to cheap funds. Hence the Bill to mention the type of MFIs eligible to offer thrift facility and the mandatory pre-requisites. Further the task of insuring depositor protection needs to be incorporated in the bill. |
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| Thrift services should be provided not just SHG or other groups but also to individuals. Thrifts are allowed as term or recurring deposits. Flexibility of frequent withdrawal by the clients has to be provided. |
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Microcredit Definition
The present micro-credit limit of Rs. 50,000 has remained unchanged since a long time. RBI may be authorized to define the microcredit and lending limit periodically keeping in view the inflation. |
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Micro Finance Development Council
The Micro Finance Development Council should have representation from industry bodies like MFIN or Sa-Dhan and independent experts of the microfinance industry from the rating agencies |
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Constitution of State Advisory Council
There should be at least two members in the council from the microfinance institutions. These members should preferably be from the MFIs representing different models of microfinance (SHG,JLG etc.). |
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Functions of State Advisory Council
The state advisory council should also oversee the development of microfinance in the state in terms of area of coverage of underserved areas etc. |
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Net owned Funds limit
The minimum cap of net owned funds should be stipulated as Rs. 25 lakhs as it will prevent mushrooming of large number of MFIs and would encourage only the interested and capable organizations. It would also facilitate better regulatory supervision. |
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APR specification
While specifying the maximum limit of APR charged by MFIs to the clients the RBI should also specify the maximum APR which the banks could charge to MFIs. The same should be revised from time to time by RBI so that requisite APR margin is maintained to meet the operating and other costs of MFIs. This may be imbedded in the bill. |
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Common Code of Conduct
The Bill to specify the code of conduct to be uniformly followed by all MFIs irrespective of their constitution on the lines of Fair Practices Code of RBI to NBFCs for effective client protection practices. This will help in having common code of conduct for all categories of MFIs instead of adopting CoCs of various voluntary organizations like MFIN, Sa-Dhan etc. |
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| 24.1)(g) & (i) |
| The requirement to provide information to the credit bureau & client protection code should also extend to state government, banks and other organizations providing micro finance to this customer segments. |
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Microfinance Development Fund
The size of the fund and the financing microfinance sector needs to be well defined. The size of the fund need to be substantial to take care of the financial requirement of MFIs |
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Micro Finance Development Fund
It is more appropriate to create an independent organization to manage the micro finance development fund instead of RBI. |
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Delegation to NABARD
The RBI, with the previous approval of the Government, may delegate any of its Powers with respect to any class of MFIs to NABARD. It indicates that NGO-MFIs may be governed by NABARD till they become SI-MFIs. However the nature of delegation, class of MFIs needs etc. to be clearly spelt out in the Bill. Also a consideration should be done whether NABARD should be given the role of regulator of MFIs given its active participation in SHG promotion. |
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