RBI to study coercive recovery by MFIs

Accordingly, RBI has set up a sub-committee of the Central Board of Directors of the Reserve Bank of India to study the issues and concerns in this sector, including ways and means of making interest rates charged by them reasonable.  A senior member on the Central Board of Directors of Reserve Bank of India, Y H Malegam will be heading the panel which will submit its report in three months, RBI said.  It said there have been some concerns expressed in the media about high interest rates, coercive recovery processes and multiple lending practised by some microfinance institutions.

Government ordinance

The seriousness of issues in MFIs was such in some states like Andhra Pradesh, where the State Government has issued an ordinance making registration of microfinance institutions (MFIs) with the State governments compulsory recently.

It aims to rein in Microfinance Institutions (MFIs), whose coercive tactics led to the death of a number of people in the state recently. Christened the ‘Andhra Pradesh MicroFinance Institutions (regulation of money lending) Ordinance, 2010’, the Ordinance came into force on October 15. Currently, RBI only regulates only those MFIs which are registered with it as non-banking finance companies (NBFCs). Although the registered companies cover over 80 per cent of the microfinance business, in terms of number of companies they constitute a small percentage of the total number of MFIs in the country.