The micro-finance institutions (MFIs) need to have a code of conduct and must follow 'respectful' methods for recovery of loans, Finance Minister P Chidambaram said on Tuesday.
'...responsible financing by way of transparency, interest rate rationalisation, respectful recovery procedure must be followed by micro finance institutions,' he said while listing the challenges faced by MFI industry. He was speaking at the Microfinance India Summit 2012 here.
Micro-finance institutions in some states, especially Andhra Pradesh, have faced problems on account of use of strong arm tactics for recovery of loans. This also resulted in suicides by borrowers. Chidambaram also asked MFIs to verify data on borrowers with credit bureau to avoid multiple borrowing or over indebtedness. 'I will request the micro finance sector to adapt itself to the expectation of public at large, especially, with regard to their code of conduct,' he said.
He further said the proposed Micro Finance Institutions (Development and Regulation) Bill, 2012 will provide adequate legislative framework for development and regulation of the sector.
'We are hopeful that the Bill will be cleared by the Standing Committee, then brought to Parliament for passage. Once the bill is passed, I hope that it will provide an adequate legislative framework for the entire gamut of micro-finance services,' he said. The legislation seeks to empower RBI to regulate the sector and fix interest rates caps on loans provided by them. The Bill, which was drafted in the backdrop of problems faced by borrowers of MFIs in Andhra Pradesh and other states, also seeks compulsory registration of MFIs with the RBI. Micro finance – the business of doling out small loans at usually high interest rates to poor people who are unable to access conventional lending instruments – has come under intense regulatory scrutiny in the wake of an Act passed by the Andhra Pradesh government.
‘GOVT HOPES MICRO-FINANCE BILL WILL BE PASSED SOON’
Finance Minister P Chidambaram on Tuesday said the Micro Finance Institutions (Development and Regulation) Bill, 2012, is currently being scrutinised by a Parliamentary Standing Committee. He asked micro-finance institutions to verify data on borrowers with credit bureau so as to avoid multiple borrowing or over indebtedness.
Micro finance – the business of doling out small loans at high interest rates to poor people who are unable to access conventional lending instruments – has come under intense regulatory scrutiny in the wake of an Act passed by the Andhra Pradesh government.
The Andhra Pradesh Act seeks to tighten the screws on the industry, which has allegedly been blamed for a spate of suicides in the state due to high interest rates charged by micro-finance institutions. Allegations that the use of strong-arm tactics by lenders caused a huge number of suicides also dented the micro-finance institutions ' image.
The southern state accounts for nearly half of the total micro finance business in the country with major players like SKS Microfinance, Spandana Sphoorty Financial and Basix present in the state.
Chidambaram also asked the micro-finance institution sector to focus on north-eastern region, West Bengal, Bihar, Uttar Pradesh and other states which are not served or under-served by it.
He said the 'financial inclusion architecture' will remain incomplete unless the micro finance is integrated into the financial services delivery system.
He said that MFIs play an important role in financial inclusion.
'...responsible financing by way of transparency, interest rate rationalisation, respectful recovery procedure must be followed by micro finance institutions,' he said while listing the challenges faced by MFI industry. He was speaking at the Microfinance India Summit 2012 here.
Micro-finance institutions in some states, especially Andhra Pradesh, have faced problems on account of use of strong arm tactics for recovery of loans. This also resulted in suicides by borrowers. Chidambaram also asked MFIs to verify data on borrowers with credit bureau to avoid multiple borrowing or over indebtedness. 'I will request the micro finance sector to adapt itself to the expectation of public at large, especially, with regard to their code of conduct,' he said.
He further said the proposed Micro Finance Institutions (Development and Regulation) Bill, 2012 will provide adequate legislative framework for development and regulation of the sector.
'We are hopeful that the Bill will be cleared by the Standing Committee, then brought to Parliament for passage. Once the bill is passed, I hope that it will provide an adequate legislative framework for the entire gamut of micro-finance services,' he said. The legislation seeks to empower RBI to regulate the sector and fix interest rates caps on loans provided by them. The Bill, which was drafted in the backdrop of problems faced by borrowers of MFIs in Andhra Pradesh and other states, also seeks compulsory registration of MFIs with the RBI. Micro finance – the business of doling out small loans at usually high interest rates to poor people who are unable to access conventional lending instruments – has come under intense regulatory scrutiny in the wake of an Act passed by the Andhra Pradesh government.
‘GOVT HOPES MICRO-FINANCE BILL WILL BE PASSED SOON’
Finance Minister P Chidambaram on Tuesday said the Micro Finance Institutions (Development and Regulation) Bill, 2012, is currently being scrutinised by a Parliamentary Standing Committee. He asked micro-finance institutions to verify data on borrowers with credit bureau so as to avoid multiple borrowing or over indebtedness.
Micro finance – the business of doling out small loans at high interest rates to poor people who are unable to access conventional lending instruments – has come under intense regulatory scrutiny in the wake of an Act passed by the Andhra Pradesh government.
The Andhra Pradesh Act seeks to tighten the screws on the industry, which has allegedly been blamed for a spate of suicides in the state due to high interest rates charged by micro-finance institutions. Allegations that the use of strong-arm tactics by lenders caused a huge number of suicides also dented the micro-finance institutions ' image.
The southern state accounts for nearly half of the total micro finance business in the country with major players like SKS Microfinance, Spandana Sphoorty Financial and Basix present in the state.
Chidambaram also asked the micro-finance institution sector to focus on north-eastern region, West Bengal, Bihar, Uttar Pradesh and other states which are not served or under-served by it.
He said the 'financial inclusion architecture' will remain incomplete unless the micro finance is integrated into the financial services delivery system.
He said that MFIs play an important role in financial inclusion.