Govt to regulate MFIs' interest rates: FM

Banks to provide guidelines to MFIs

trithesh

Trithesh Nandan | November 19, 2010



The government is set to regulate the interest rate the MFIs charge to its customers, finance Minister Pranab Mukherjee said on Friday.

“The rate of interest should be moderate. Banks are also being instructed to provide MFIs with necessary guidelines (and check) if those guidelines are complied to,” Mukherjee said while replying to the questions in the Hindustan Times summit in New Delhi.

The Reserve Bank of India (RBI) appointed a committee to examine the state of the MFI sector under the chairmanship of Y H Malegam in October. The regulatory mechanism will be placed after the committee gives recommendation to the government.

“The committee will submit the report in December after that I will take appropriate measures in consultation with the RBI,” the finance minister said.

A section of MFIs has been accused of using strongarm tactics in recovering debts which led to several suicides in Andhra Pradesh. Many MFIs are also accused of providing loans at the interest rates of more than 40 percent.

But the finance minister also clarified, "I would not like to strangulate the system as banks cannot reach large section of society through regular banking services.”

The MFIs in Andhra Pradesh have come under crisis after the state government slapped an ordinance on disciplining of the informal lenders after the increased rates of suicides in the state. “I have analysed the ordinance and given some suggestions to the Andhra Pradesh government,” Mukherjee noted.

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