MICROCAPITAL BRIEF: India’s Redrafted Micro Finance Institutions Bill Would Raise Loan Ceiling to $9k, Task State Committees with Reporting Violations

A change in the Indian Micro Finance Institutions (Development and Regulation) Bill has reportedly raised the ceiling for loans disbursed by microfinance institutions (MFIs) from INR 50,000 (USD 910) to INR 500,000 (USD 9,100). The bill reportedly allows this maximum to be increased to INR 1,000,000 (USD 18,100) by the Reserve Bank of India (RBI), the country’s central banking authority, without further legislative action. Sector practitioners reportedly have expressed concern over this change. A statement attributed to an unnamed banker with IndusInd Bank, a private bank that offers retail and commercial services, stated that with the increased limit “even personal loans might get clubbed under microfinance. Clearly, at 5 lakh (USD 9,100), you are not targeting the original segment.”

A senior finance ministry official reportedly said that the department of financial services wanted to limit the amount individuals can borrow but did not want to set a specific cap. The law ministry reportedly would not pass the bill without a specific limit, so the loan ceiling was set high to avoid the need to amend the bill in the near future.

Other changes to the bill include tasking state microfinance committees with reporting MFI regulation violations to RBI rather than being purely advisory. District-level committees will also be formed to hold meetings every three months and also report violations directly to RBI.

By Charlotte Newman, Research Associate

About Reserve Bank of India
Established in 1935, the Reserve Bank of India (RBI) undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While all microfinance institutions (MFIs) and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5 percent stake in the outfit, RBI owns a one-percent stake in NABARD as of 2011.

Sources and Additional Resources:

Economic Times: “Changes in Draft Microfinance Bill Shocks the Microfinance Sector,” http://articles.economictimes.indiatimes.com/2012-05-26/news/31860978_1_sks-microfinance-microfinance-sector-sa-dhan

MicroCapital.org story, May 15, 2012, “MICROCAPITAL BRIEF: Union Cabinet of India to Present Microfinance Bill to Parliament,” https://www.microcapital.org/microcapital-brief-union-cabinet-of-india-to-present-microfinance-bill-to-parliament/

MicroCapital.org story, April 26, 2012, “MICROCAPITAL BRIEF: RBI Wants Microfinance Institution Deposit-Taking Cut from Micro Financial Sector Bill,” https://www.microcapital.org/microcapital-brief-rbi-wants-microfinance-institution-deposit-taking-cut-from-micro-financial-sector-bill/

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