Microfinance Horizon

By Ruth David

25 November 2010 [BusinessWeek]

India’s finance ministry plans to introduce new legislation for the nation’s microfinance industry, a federal minister said yesterday.

The Micro Finance (Development & Regulation) Bill, 2010, will be developed in consultation with the central bank, Namo Narain Meena, the junior finance minister, said in a written statement to the upper house of Parliament.

The Reserve Bank of India last month appointed a sub- committee led by Y.H. Malegam to study the nation’s microfinance companies and recommend ways to make their interest rates “reasonable,” Meena said. The Malegam committee will submit their report in three months, he said.

Lawmakers yesterday asked the government to comment on whether microfinance companies are charging high interest rates after the southern state of Andhra Pradesh last month clamped down on the industry. The new rules brought loan collections there to a near halt, led to a plunge in shares of the largest micro-lender and led smaller rivals to delay share sales.

The federal government in September wrote to the heads of public sector banks asking them to ensure that the rates of interest charged by microfinance companies were reasonable, Meena said.