Nabard to regulate MFIs

The Centre has decided to appoint the National Bank for Agriculture and Rural Development (Nabard) as the regulatory agency to oversee the activities of micro finance institutions (MFIs) in the country.

According to sources in the finance department, the Centre is expected to introduce an amendment Bill to the Nabard Act during the current session of the Parliament to enable Nabard to don the new role for regulating the growing informal micro financing sector that has come under criticism in the absence of any guidelines.

Earlier, the Reserve Bank of India had refused to undertake regulatory measures with regard to MFI activities citing the largely informal nature of micro financing besides expressing inability to spare its machinery or time for the same.

But the Centre was of the opinion that regulating MFI operations was necessary in the wake of reported excesses alleged to have been committed by some MFIs and also on account of the growing size of operations, sources said.

The RBI itself is now understood to have suggested to the Centre that the job be entrusted to Nabard as the latter has been in the business of rural lending. "Though several guidelines would be put in place for healthy micro finance operations, they may not cover the issue of interest rates being charged by these institutions," sources told Business Standard.

It may be recalled that the Andhra Pradesh government had recently appointed a senior IAS officer to inquire into the alleged irregularities, including forced recovery, high interest rates, prior deduction of charges from loan amount and mortgaging documents by some MFIs operating in Krishna and Guntur districts.

The official has already submitted its report, which is understood to have endorsed the views of the district administration on the negative impacts from the operations of some private institutions.

Authorities of Krishna and Guntur districts had closed the offices of a couple of microfinance institutions based on the complaints from borrowers even as there was no Act or guidelines to prove any violations by these operators.