Govt mulls capping rates in MFI bill | business | Hindustan Times
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Govt mulls capping rates in MFI bill

business Updated: Nov 18, 2010 23:17 IST
HT Correspondent
HT Correspondent
Hindustan Times
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The microfinance bill, which is set to be introduced in Parliament in the current session, does not have a provision to cap interest rates on lending. An official source, however, said that the government could consider the issue of putting a cap on interest rates in the wake of the recent controversy related to the micro finance institutions (MFIs) and the move by the Andhra Pradesh government.

"Though the finance ministry has always opposed putting a cap on interest rates that have been charged by MFIs, it could consider the move keeping in mind the recent events," a government source told Hindustan Times. The source said that the centre is keen on introducing the bill at the earliest. "The target is to put it up in the current session," the source said.

The bill has proposed that National Bank for Agriculture and Rural Development (NABARD) should play the role of the regulator for the MFIs. The non banking finance companies have however been kept out of the ambit of the regulator.

"There needs to be a legal framework to ensure that proper functioning of MFIs," the source, who refused to be identified, said.

The Andhra Pradesh government has already tightened its hold on the MFIs. All MFIs operating in the state need to be registered under the state registration authorities. The proposed MFI bill also seeks to ensure that borrowers are not harassed by the MFIs at the time of recovery.

Any rigorous process for recovery of the loans will be considered an offence, once the bill becomes law. Borrowers may also be barred from taking multiple loans while MFIs may not be allowed to lend to those who already have outstanding loans.