The Indian Ministry of Finance is in the final stages of drafting a new microfinance bill that would transfer all regulatory power over microfinance to the Reserve Bank of India (RBI), the country’s central bank, in an effort to create a uniform framework for all microfinance institutions (MFIs), according to Indian news website Moneycontrol.com. Whereas RBI and the National Bank for Agriculture and Rural Development (NABARD) were previously in charge of regulating non-banking financial corporations (NBFCs) and non-NBFCs, respectively, the new proposal would involve RBI taking over the entire regulatory responsibility. State governments would be responsible for monitoring whether microfinance clients rights are being protected. The new bill would also replace state-level microfinance regulation including the Andhra Pradesh ordinance of late 2010.
A draft of the microfinance bill is expected to be released in the near future.
By Rohan Trivedi, Research Associate
About The Reserve Bank of India (RBI):
Established in 1935, the Reserve Bank of India undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While all microfinance institutions (MFIs) and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5 percent stake in the outfit, RBI owns a one-percent stake in NABARD as of 2011.
About The National Bank for Agriculture and Rural Development (NABARD):
The National Bank for Agriculture and Rural Development (NABARD) is a development bank in India that formulates the credit and banking policy for the rural sector, supervises and conducts on-site inspections of cooperatives and regional rural banks (RRBs) and promotes the development of microfinance activities in the rural sector. NABARD is charged with the oversight of the Microenterprise Development Programme, which focuses exclusively on the development of microenterprises. Through this program and the Microfinance Development and Equity Fund, an INR 2 billion (USD 44.6 million) fund designed to support the growth of microfinance, NABARD provides loans to nongovernmental organizations, nonprofit microfinance institutions (MFIs) and agricultural lending outfits. NABARD was formed by an act of the Indian Parliament in 1979 based on the recommendation of the Reserve Bank of India (RBI), which originally owned a controlling interest in NABARD but as of 2010 owns a 1-percent stake in the bank. While MFIs and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD upon its formation in 1979. As of March 2011, NABARD oversees 31 state cooperative banks, 370 district central cooperative banks, 86 RRBs and 18 state cooperative agricultural and rural development banks. In 2010, NABARD set a fiscal year target of INR 3,750 billion (USD 80.3 billion) for credit disbursement via commercial and government retail financial institutions, up from INR 3,250 billion (USD 69.6 billion) the previous year.
Sources and Additional Resources:
[1] MoneyControl.com: “New MFI bill to make RBI sole regulator, supersede old laws”, http://www.moneycontrol.com/news/cnbc-tv18-comments/new-mfi-bill-to-make-rbi-sole-regulator-supersede-old-laws_555801.html
MicroCapital.org story, May 19, 2011: “MICROCAPITAL BRIEF: Confusion Continues Over Regulation of Microfinance Institutions (MFIs) in India, State of Andhra Pradesh May Adjust Law to Reconcile With Federal Rules”, https://www.microcapital.org/microcapital-brief-confusion-continues-over-regulation-of-microfinance-institutions-mfis-in-india-state-of-andhra-pradesh-may-adjust-law-to-reconcile-with-federal-rules/
MicroCapital.org story, May 5, 2011: “MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Enacts Most of Microfinance Guidelines Proposed by Malegam Committee”, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-enacts-most-of-microfinance-guidelines-proposed-by-malegam-committee/
MicroCapital.org story, April 19, 2011: “MICROCAPITAL BRIEF: Indian Government Proposes Micro Financial Sector (Development and Regulation) Bill Include NBFCs, Andhra Pradesh Considers Non-Banking Financing Company (NBFC) Model to Balance Microfinance Institutions (MFIs)”, https://www.microcapital.org/microcapital-brief-indian-government-proposes-micro-financial-sector-development-and-regulation-bill-include-nbfcs-andhra-pradesh-considers-non-banking-financing-company-nbfc-model-to-balance-mi/
MicroCapital.org story, March 14, 2011: “MICROCAPITAL BRIEF: India’s Andhra Pradesh State to Tighten Local Microfinance Institutions (Regulations and Moneylending) Act”, https://www.microcapital.org/microcapital-brief-indias-andhra-pradesh-state-to-tighten-local-microfinance-institutions-regulation-of-moneylending-act/
MicroCapital Universe Profile: Reserve Bank of India (RBI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29
MicroCapital Universe Profile: National Bank for Agriculture and Rural Development (NABARD), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=National+Bank+for+Agriculture+and+Rural+Development+%28NABARD%29
Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse/
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