The Finance Ministry proposes to empower the Reserve Bank of India (RBI) to specify the maximum ‘annual percentage rate' to be charged by a microfinance institution.
The draft Micro Finance Institutions (Development and Regulation) Bill, 2011 posted on the Ministry's Web site defines the ‘annual percentage rate' to include interest, processing fees, service charges and any other charges or fees charged by MFIs to clients.
Percentage of margin
The Bill also mandates MFIs to operate within a ‘percentage of margin' to be determined by the RBI.
The margin refers to the difference between the annual percentage rate collected by an MFI for any financial assistance granted to clients and the cost of funds raised and other operational costs incurred for grant of such financial assistance.
The publishing of the draft Bill on the Finance Ministry's Web site is seen as a move to dispel apprehensions of the Centre having dropped plans to enact a legislation to regulate MFIs and promote the orderly growth of the sector.
The RBI, which had appointed the Malegam committee to look into the problems of the microfinance sector, has been stressing the need for a central legislation to regulate the troubled sector.
In the absence of such a legislation, States would come up with their own laws that would put the industry into difficulties.
The Finance Ministry has asked all stakeholders to send in their views on the statutory framework proposed by the draft Bill.
Delegation of activities
The Bill also empowers the RBI to delegate certain activities concerning the regulation of microfinance sector to the National Bank for Agriculture and Rural Development.
It also provides for the Centre to constitute a ‘Micro Finance Development Council' to advise it on formulation of policies, schemes and other measures required in the interest of orderly growth and development of the sector and MFIs, to promote financial inclusion.
The Centre could also establish State Advisory Councils for microfinance. Such councils could be set up with jurisdiction over more than one State.