AP asks Centre to revise draft MFI Bill

HYDERABAD: Stating that the draft Micro Finance Institutions (Development and Regulation) Bill 2011 has been prepared taking into account the interests of MFIs only, the state government has urged the Centre to revise it by accommodating the views of experts, civil society and stakeholders belonging to vulnerable sections of the society before introducing the same in Parliament.
The state government wants the draft to balance development and regulation aspects better. "The Bill has proposed several measures for development of MFIs, but the same attention has not gone into the aspects of protection to the consumers who come from vulnerable sections of the society. The issues of multiple lending, evergreening of loans, lack of due diligence before lending, non-transparent dealings and coercive recovery practices are either missing or have been given a cursory dealing," the state observed in its three-page comments sent to the Centre earlier this week.
The Micro Finance (Development and Regulation) Bill 2011, which has been proposed by the department of financial services, ministry of finance, addresses the issue of regulatory deficit in the MFI sector and fulfils a long-standing demand for a comprehensive regulation of the sector.
The state government has taken serious objection to the description of MFIs in the draft bill as extended arms of banks. In support of its argument, it states: "Considering the ground realities of how MFIs have been operating, it is fallacious to describe the MFIs as extended arms of the banks. The lending practices, interest rates, recovery practices of the banks and the MFIs are radically different. Whereas the banks are bound by a national commitment with mandated focus on the priority sector, the MFIs are financial companies depending on money lending and exist solely for making profit. Mere fact of drawing funds from banking system cannot make them extended arm of banks. Such an expression is not only inappropriate but is also dangerous for two reasons."