Centre rules out cap on microfinance rates

The Centre has ruled out capping of interest rates charged by microfinance institutions (MFIs).

The proposed Microfinance Regulation Bill will also not have any provision seeking to regulate lending rates of MFIs, a senior Finance Ministry official has said.



“We don't intend to regulate interest rates (charged by MFIs). It is not just feasible to control them,” Mr R. Gopalan, Secretary, Department of Financial Services, told Business Line here, when asked if the Centre plans to cap the lending rates of MFIs.

The Centre's stance assumes importance in the wake of incidents of alleged harassments of debtors by certain MFIs in Andhra Pradesh. The Andhra Pradesh Government had reportedly indicated that it was considering an ordinance to control MFIs.

Tough choice

Mr Gopalan also made it clear that the State governments can, if they wanted to, control or regulate the interest rates charged by the MFIs.

“I think they have the right to do that, but they should also look at the issue of credit reaching those areas where the banks have not gone to. It is a tough choice for the State governments to make. I believe there are certain laws within which they could take some action,” he added.

The Centre had a few years ago attempted to enact a legislation to regulate the microfinance industry. But the effort did not make any headway following resistance from certain Opposition parties.

Asked if the Centre intends to pursue the plan to enact a legislation to regulate the microfinance industry, Mr Gopalan said that consultations with stakeholders have been completed with regard to the Microfinance Regulation Bill.

He indicated that the Finance Ministry will look at the process of taking it forward

via BL