MFIs,bankers cheer new Bill

The Finance Ministry on Wednesday unveiled the MFI (development & regulation) Bill,2011,which proposes to override all other laws,including legislations passed by states like Andhra Pradesh,to protect consumers.

Dilli Raj,CFO,SKS Microfinance,the largest listed MFI in the country,said the proposed MFI Bill provides regulatory clarity by making the RBI the sole regulator for the MFI sector.

This gives us the impetus and the strength which we require. Also creating a Microfinance Development Fund would enhance funding opportunity and augment the flow of credit to the sector, he said.

Alok Prasad,CEO,Microfinance Institutions Network (MFIN),a national organisation of microfinance NBFCs in the country,said the proposed draft Bill is a progressive forward-looking document. It strikes a fine balance between the need for a single regulator and the concerns of the state government. Prasad was also part of the Bill-drafting panel.

MFIN consists of NBFC micro-finance companies which are regulated by the central bank. NBFC MFIs have over 80 per cent of the micro-finance market share and since the RBI regulates NBFCs,it is the appropriate regulator for the industry,bankers said.

The provisions specified in the draft Bill are enabling powers,and the central bank will have full discretion in exercising those powers. The proposed minimum level of capital is to ensure that no MFI should feel that it cannot stay in business because of lack of capital.

Prasad said since there is a large-scale process of consultation with diverse stakeholders,the Bill may be ready to introduce in the parliament in the winter session. The draft Bill has proposed that any entity,other than banks,which provides microfinance services,would be treated as an MFI and come under the RBI.

The Bill says that every MFI will have to register with the RBI within three months of the commencement of the Act. The RBI will have sweeping powers to regulate lending rates and margins besides fixing prudential norms The draft Bill also recommends that all MFIs must create a reserve fund out of its net profit,and entrusts RBI to decide on the percentage that should be transferred to this fund every year. The Bill has proposed the RBI can delegate some of its powers to National Bank for Agriculture & Rural Development. The Bill clarifies that services provided by MFIs will not be treated as money lending.

Another key point in the Bill is that interest rates will not be regulated but what the RBI will regulate are the margins which have been defined as the difference between the sum of interest rates plus other charges and the cost of funds.

SKS Microfinance shares zoom 20%

Shares of SKS Microfinance soared by 20 per cent to hit the upper circuit limit on the bourses after the Finance Ministry unveiled the draft Bill,which seeks to make it mandatory for all microfinance institutions to be registered with the Reserve Bank of India,making it the sector regulator. The SKS stock opened on a weak note at Rs 333.50 on the BSE but soon regained the lost ground and rallied to a high of Rs 411,up 20 per cent from its previous closing price. Similarly,the stock on the NSE surged to a high of Rs 411.80 after opening at Rs 335.10. SKS shares,which made a popular initial public offering last year,tumbled in the wake of the Andhra Pradesh rules last year and now trade about 72 per cent below their September peak,even after Thursdays rally.