A Presentation by M R Umarji

Smart Regulation creating Policies that work Compared with other countries around the Globe India has low levels of financial penetration and deepening. Financial Exclusion remains an area of concern. Policy approach focused on ensuring inclusion at individual and household level

Financial Inclusion Policy Initiatives No frills accounts. Rapid strides made by SHG – Bank – linkage programme. NGOs, MFIs & NBFCs have emerged as important sources for micro finance delivery. Unique Identification Number Scheme

Growth of MFI – linkage programme both in terms of credit linked instruments and amount of loans was much higher than corresponding growth under SHG – Bank linkage programme in Prudent policy is to create environment for growth and development of MFIs.

Are MFIs money lenders? Micro finance is defined as provision of thrift, credit and financial services and products of small amounts to the poor in rural, semi- urban and urban areas for enabling them to raise their income levels and improving living standards There is a need to treat MFIs as para-banks and not MONEY LENDERS. Policy Issues

Present regulatory treatment of MFIs NBFCs – regulated by RBI and are clearly not money-lenders All aspects of lending business of NBFCs including interest rates and recovery practices fall within the regulatory purview of RBI and not any STATE GOVERNMENT. Non-corporate MFIs have no specific regulator although their work in promoting financial inclusion is acknowledged and their role in micro finance is recognised.

Suggestions for encouraging growth of MFIs Treat MFIs as para bankers and not money lenders. Enact a Central law for regulation of all MFIs including corporates and non-profit entities. If necessary set up a new Regulator. In areas where there are no bank branches permit selected MFIs to collect thrift subject to compliance with conditions designed to protect small depositors.

Other Issues Quantum of loans, end-use of funds, repayment schedules, excessive lending resulting in over-indebtedness, place of disbursement, interest rates and other charges, recovery practices. - Best left for the Lender MFIs to decide subject to regulatory directives / guidelines COUPLED WITH A NEW LAW ON PROTECTION OF CONSUMERS OF FINANCIAL SERVICES.

Such new law can can cover - Ceilings on loans and rates of interest or margins on consumer loans and other terms if any. -Annual Percentage Rate to be conveyed to borrowers. -Fair Debt Collection Practices.

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