The Micro Finance
Institutions (Development and Regulation) Bill, 2012 was introduced in the Lok
Sabha on May 22, 2012. The Bill aims to
provide for the development and regulation of micro finance institutions. The
drafted bill can be accessed (here).
A micro finance
institution (MFI) is defined as an organisation, other than a bank, providing
micro finance services. These services
are defined as micro credit facilities not exceeding Rs 5 lakh in aggregate, or
with the Reserve Bank’s (RBI) specification Rs 10 lakh, to each individual.
Other services like collection of thrift, pension or insurance services and
remittance of funds to individuals within India also come under micro finance
services.
The Bill allows the
central government to create a Micro Finance Development Council with officers
from different Ministries and Departments. The council will comprise members
not below the rank of Executive Director of NABARD, National Housing Bank, the
RBI and SIDBI. Joint secretaries from the ministry of finance and the ministry
of rural development will also be its members. This council will advise the
central government on policies and measures for the development of MFIs.
In addition, the Bill
allows the central government to form State Micro Finance Councils. These councils will be responsible for
coordinating the activities of District Micro Finance Committees and reviewing
the MFIs in their state. District Micro Finance
Committees review the development of micro finance activities within the
district, monitor over-indebtedness and monitor the methods of recovery used by
MFIs. These committees can be appointed by the RBI.
The Bill requires that all
MFIs to obtain a certificate of registration from the RBI. The applicant needs
to have a net owned fund of at least Rs 5 lakh. By ‘net owned fund’ the Bill
means the aggregate of paid up equity capital and free reserves on the balance
sheet. The RBI should also be satisfied
with the general character or management of the institution.
Every MFI will have to
create a reserve fund and the RBI may specify a percentage of net profit to add
to this fund. There can be no
appropriation from this fund unless specified by the RBI.
At the end of every
financial year, MFIs are required to provide an annual balance sheet and profit
and loss account for audit to the RBI.
They will also have to provide a return detailing their activities
within 90 days of the Bill being passed.
Any change in the
corporate structure of a MFI, such as a shut down, amalgamation, takeover or
restructuring, can only take place with approval from the RBI.
The RBI has the power to
issue directions to MFIs. This could
include directions on the extent of assets deployed in providing micro finance
services, ceilings on loans or raising capital.
The RBI has the authority
to set the maximum annual percentage rate charged by MFIs and set a maximum
limit on the margin MFIs can make. Margin is defined as the difference between
the lending rate and the cost of funds (in percentage per annum).
The RBI shall create the
Micro Finance Development Fund. Sums raised by the RBI from donors,
institutions and the public along with the outstanding balance from the
existing Micro Finance Development and Equity Fund form this fund. The central government, after due
appropriation from Parliament, may grant money to this fund. The fund can provide loans, grants and other
micro credit facilities to any MFI.
The RBI is responsible for
redressal of grievances for beneficiaries of micro finance services.
The Bill allows the RBI to
impose a monetary penalty of upto Rs 5 lakhs for any contravention of the
Bill’s provisions. No civil court will
have jurisdiction against any MFI over any penalty imposed by the RBI.
The Bill gives the central
government the authority to delegate certain RBI powers to the National Bank of
Agriculture and Rural Development or any other central government agency.
The central government has
the power to exempt certain MFIs from the provisions of the Bill.
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