A new microfinance bill that was recently introduced in the Indian Parliament would remove the cap on microloan interest rates. Although there would be no cap on interest rates, the regulatory body would “advise” microfinance institutions to keep rates low and would “closely monitor” them, according to government officials.

“The act will leave the self-help groups and other community-owned and managed MFIs out of its regulatory reach,” said a Reserve Bank of India official.

The Indian government is planning to reintroduce a microfinance bill to Parliament that would significantly impact the regulation of the rapidly growing microfinance industry, which has reportedly been growing at almost 52 percent per year for the last three years in terms of client outreach.
The bill would designate the National Bank of Agriculture and Rural Development (NABARD), an Indian public sector financial institution for rural development, as the new regulatory body for microfinance institutions (MFIs). The current regulatory body is the Reserve Bank of India (RBI), India’s central bank.

The bill would also allow MFIs to accept deposits from their borrowers. Mr Mathew Titus, Executive Director of Sa-dhan, an association of community development finance institutions, commented: “The poor do not go to the bank to put their savings in bank accounts. They rely on money collectors, who are infamous for fleeing with money, or they store it at their places. However, if [MFIs] are allowed to accept deposits by borrowers it will open new and more credible avenues of savings for them.” About National Bank of Agriculture and Rural Development (NABARD):

The National Bank of Agriculature and Rural Development (NABARD) is a development bank that regulates microfinance activities among state-owned cooperatives and regional rural banks in India. The primary functions of NABARD are to formulate the credit and banking policy for the rural sector, to supervise and conduct on-site inspections of cooperatives and regional rural banks and to promote the development of microfinance activities in the rural sector. NABARD is charged with the oversight of the Microentreprise Development Programme (MEDI), which focuses exclusively on the development of microenterprises.

About Reserve Bank of India (RBI):

Reserve Bank of India (RBI) is India’s central banking authority. Established in 1935, RBI undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in banking fraud, assess the divergence non-performing assets and supervise the rating model for banking sector. RBI consists of twenty-two regional offices.