The much-awaited Microfinance Institutions Regulation and Development Bill has hit a roadblock.

The Union Ministry of Rural Development has raised objections to some of the key proposals mentioned in the draft Bill which was released in July in the wake of crisis in Andhra Pradesh.

The microfinance institutions, however, are hoping that the Bill would be introduced in the on-going winter session of Parliament.

“We have indicated our apprehensions on the contents and form of the draft Bill on certain grounds,'' a senior official in the Ministry of Rural Development told Business Line on Thursday.

The main objections raised included proposed treatment of microfinance institutions as extended arms of banks, collection of thrift and not treating microfinance institutions as moneylenders in view of the experience in Andhra Pradesh, where up to 60 per cent of interest was collected from poor women.

There has also been a feeling that microfinance is the costliest path to financial inclusion and there is a need to search for cheaper alternatives.

The objections are apparently based on the exception the Andhra Pradesh Government had taken to some of the proposals like bringing micro lenders completely under the Reserve Bank of India's regulatory jurisdiction.

The State, which had enacted its own MFI Act in October last year, has been maintaining that the apex bank had no wherewithal to supervise micro lending at the ground level.

It is unlikely that the Bill would be introduced in the on-going session.

“Every Bill to be tabled in the House has to go to the Cabinet first. But the MFI Bill has not even reached this stage,'' said the official.

MFIs have been eagerly waiting for the enactment of Bill as it would clear the uncertainties in Andhra Pradesh, where about Rs 6,000- crore loan repayments are outstanding.

The size of microfinance portfolio was estimated to be at Rs 33,000 crore last year.

nagsridhu@thehindu.co.in

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