The bill had sought to empower the Reserve Bank to regulate MFIs and fix interest rate ceiling on loans to be provided by them.

A Parliamentary panel has rejected the bill on micro—finance institutions (MFIs) and asked the government to bring a fresh legislation before Parliament.

The bill had sought to empower the Reserve Bank to regulate them and fix interest rates ceiling on loans to be provided by MFIs.

The Parliamentary Standing Committee on Finance headed by senior BJP leader and former finance minister Yashwant Sinha, has observed in its report tabled in Lok Sabha, that it requires wider consultations and said, “Bring forth a fresh legislation before Parliament.”

The bill was introduced in the Lok Sabha in May, 2012 and was later referred to the committee for perusal.

”...view of the state government, and regulators namely, RBI, PFRDA, IRDA and financial institutions like NABARD on the other, the committee finds that the bill is rather sketchy with inadequate groundwork and lacking in consensus, requiring wider consultations with stakeholders and deeper study on vital issues,” it stated in its report to the House.

It also said, “The committee constrained to convey their unacceptability of the Micro Finance Institutions (Development and Regulation) Bill, 2012 in its present form.”

The panel has also suggested to constitution of a unified and independent regulator for the entire micro finance sector as a whole, which may be termed as the Micro Finance and Development Regulatory council (MFDRC) with representatives from all agencies and institutions concerned like RBI, NABARD and SIDBI and the nominees from central government and MFIs.

The bill, which was drafted against the backdrop of problems faced by borrowers of MFIs in Andhra Pradesh and other states, provides for compulsory registration of MFIs with the RBI.

The micro finance business, which entails doling out small loans at high interest rates to those who do not have access conventional lending institutions, has come under intense regulatory scrutiny in the wake of an Act passed by the Andhra Pradesh government.