Cabinet clears Micro Finance Bill; RBI to regulate MFIs

The Union Cabinet on Thursday approved a bill to regulate the micro finance industry and bring the micro lenders under the purview of the Reserve Bank.

The Union Cabinet on Thursday approved a bill to regulate the micro finance industry and bring the micro lenders under the purview of the Reserve Bank.

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"It (Micro Financial Sector Development and Regulation Bill, 2011,) has also been cleared," finance minister Pranab Mukherjee told reporters after the Cabinet meeting.

The Bill, which was drafted in the backdrop of problems faced by borrowers of MFIs in Andhra Pradesh and other states, would now be introduced in Parliament for consideration.

The draft Bill, which was circulated for public comments in July last year, had proposed making RBI the regulator for the sector.

As per the draft, it would be mandatory for micro finance institutions (MFI) to be registered with the Reserve Bank and have a minimum net-owned funds of Rs 5 lakh.

In addition, a Micro-Finance Development Council will be set up to advise the government on formulation of policies, schemes and other measures required in the interest of orderly growth and development of the sector with a view to promote financial inclusion.

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.