Mudra Bank Bill Still Hangs In The Air
The finance minister of India deems Mudra to be a comprehensive monitor for the micro finance sector. But the industry does not seem to be agreeing to finance minister’s thoughts. According to them Reserve Bank of India (RBI) should carry on with its job to monitor the micro financing institutions, MFIs, which are dealt as NBFCs –non banking financial companies. This reluctance to embrace Mudra as a regulator was conveyed to the government by self regulatory companies for example Microfinance Institutions Network (MFIN). You should know that the MFIs are reluctant to embrace Mudra bank as their overseer –as the government has issued a draft to grant Mudra bank The Bank Statutory Status.
Emergence of new regulation
It all started when the Microfinance Institutions (Development and Regulation) Bill was rejected by the parliament in 2012. The bill was rejected because RBI clearly stated its incapability to control the entire industry. Mudra was introduced when the government felt the need to fill the gap between RBI, government and self operating organizations. This was done to know which organization is going to cover what sector.
Noteworthy is the fact that the finance ministry has recently brought a clause in the bill to grant statutory status to Mudra bank to monitor the micro finance institutions. Another important thing to note at this point is these MFIs are being currently monitored by the Reserve Bank of India (RBI). Furthermore, MFIs have clearly stated that they will not accept any kind of change in regulatory oversight under any circumstances. This action has caused discomfort and the government has not yet taken any decision.
The sector is afraid
You must be thinking what is actually stopping the industry to embrace this shift. The sector is afraid of instability. They think such actions only cause discomfort. The industry believes that if such clause is inserted in the bill and is approved, it is going to shake the industry once again. The sector unanimously believes that the industry is trying hard to make a comeback after 2010 crisis. The thing to consider at the moment is the government of Andhra Pradesh imposed strict laws on MFIs, which resulted in closure of many institutions in 2010.
Another thing to keep in mind is that after 2010 crisis NBFCs complied with RBI laws. These laws included following defined recovery policies, informing credit bureaus and caps on profit margins. Any change in the regulation will compel these institutions to follow new regulations. Let us see what the government decides.