Self help groups to face rating

66,000 SHG federations to be registered.

The draft micro financial sector development and regulation Bill, which is likely to be tabled in the Budget session of Parliament, makes it clear that it is meant only for microfinance organisations (MFOs) and not microfinance institutions (MFIs). MFOs comprise federations of self-help groups (SHGs) as well as NGOs which put together self-help groups.

The Bill's text says that a microfinance organisation means an organisation established to extend micro-finance services. It includes a society, a trust under Indian Trust Act, a cooperative society or a mutual benefit society.

It further says that an eligible client in the eyes of this law would be a member of a self-help group or an SHG itself formed for providing micro financial services.

Under the law, the Centre will set up a council known as Micro Finance Development Council (MFDC) to advise NABARD on formulation of policies and steps for growth of the sector. The MFDC will have 12 members, including one each from RBI, NABARD, SIDBI and National Housing Bank and six other nominees.

No microfinance organisation can function without registration from NABARD under the Act. It sets conditions and qualifications for eligibility of MFOs.

An MFO must at least have net-owned funds of Rs 5 lakh and be three years old. MFOs registered under the Act shall create a reserve fund, which is 15 per cent of their net profit.

For the first time, NABARD will facilitate development of rating norms for SHGs.

So far, rating has been confined to MFIs, which have been kept out of the purview of the Bill. The draft says NABARD will also specify the form and manner of accounting, besides maintaining a data base on MFOs. It also provides for a micro-finance development and equity fund.