i nc lu s i ve f i nanc e i nd i a re port 2014
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microfinance sector has steadily gained legitimacy over
the rest of the institutions. The Andhra Pradesh crisis
and the subsequent state government action temporarily
arrested the process. But the creation of separate category
of NBFCs re-energized the MFIs—excepting those in
Andhra Pradesh. As reported in
Microfinance State of the
Sector Report 2013
the bigger players among the NBFCs,
particularly, could ‘regain their confidence and settle
down’ as funds flow to these MFIs resumed. Though
the much awaited microfinance legislation was still in
the anvil, this class of MFIs gained from improvement
in the overall investment climate. The permission to be
BCS to banks came as another enabling provision from
the RBI in 2014. The sector as whole received a ‘shot in
the arm’
11
when the central bank officially accorded the
status of industry self-regulatory organization (SRO) to
the Microfinance Institutions Network (MFIN). As an
SRO, MFIN is authorized to carry out the key functions
surveillance, grievance redressal, dispute resolution,
investigations, data collection and training and knowledge
development for the regulated microfinance sector.
What then is about the other segment of the MFI
community, viz., the not-for profit MFIs that constitutes
about 15 per cent of the sector? They do not come under
the regulatory purview of RBI, though they are indirectly
governed by the regulations issued by the central bank
due to their borrowing relationship with banks. They can
volunteer to become members of an SRO like MFIN.
But the apprehension is that they will be dominated
by the NBFCs (Sa-Dhan 2014). There can also be a
different self regulatory dispensation for them. But there
is no clarity as to the design of such an institutional
arrangement. The neglect of the non profit MFIs sector
is considered by some as a gap in the microfinance policy
framework in India. More conspicuously, the hesitation
on the part of the government and the RBI to leverage
the success of SBLP to achieve the financial inclusion
goals is rather inexplicable (NABARD, 2013). Though
they are allowed to be BCs to banks, SHGs have been
kept outside the purview of the mainstream ‘policy
discourse’ on microfinance presumably because of their
informal and unregulated nature. But their position in
the microfinance market is critical as the SBLP dispenses
more credit to the weaker sections than the MFIs and
mobilizes savings unlike the MFIs.
5.4.1 The Parliamentary Committee’s
Observations on the Microfinance Bill 2012
As reported in the
Microfinance State of the Sector
Report 2013
, it was well understood that the Micro
Finance Institutions (Development and Regulation)
Bill, 2012 would lapse unless its got tabled during the
winter or budget sessions of the outgoing government at
the centre after the review of the Parliamentary Stand-
ing Committee on Finance. The Standing Committee
presented its report to the upper and lower houses in
February 2014 rejecting the draft Bill as ‘sketchy with
inadequate groundwork and lacking in consensus’.
12
The Committee having considered and heard the views of differ-
ent stakeholders … observe that
prima facie
the Micro Finance
Institutions (Development and Regulation) Bill, 2012 has failed
to address certain key issues which are germane to an ideal leg-
islation on micro finance in the Country. The Committee, thus,
desire that fundamental proposals in the Bill relating to margin;
interest-rate cap; allowing collection of thrift by MFIs; enabling
MFIs to render services other than credit like insurance, pension
etc., ceiling limit on credit; regulation etc., should be reviewed
de-novo
…. (p. 47).
The following are the major observations made by the
PCF on the MF Bill:
•
The Bill defeats its very objective by insisting on
security or guarantee from poor households and thus
keeping them out of the microfinance ambit.
•
The terms financial inclusion, micro finance and poor
households are not defined in the Bill indicating lack
of focus on facilitating financial inclusion.
•
In the absenceof anational policyonfinancial inclusion,
there us no guiding document for formulating a
national level legislation on microfinance.
•
MFIs emerge as a threat to the sustenance of SHGs.
•
MFIs may pose substantial risk to the financial
system.
•
Instead of tapping the potential of rural banks and
PACS to catalyse financial inclusion, the Bill exempts
them from the definition of MFIs.
•
No provision is made in the Bill to include elected
local representatives in the state and district level
monitoring bodies proposed.
