Clarifying its stand on regulation of micro-finance companies, the government has said that the Reserve Bank of India would continue to regulate MFIs registered as non-banking finance companies (NBFCs) with the central bank. MFIs will not be regulated by the Micro Units Development and Refinance Agency (MUDRA) Bank, as proposed by the finance ministry earlier.

“MUDRA Bank will regulate banks only for the purpose of MUDRA loaning. MUDRA Bank will not be the regulator of the micro finance institutions. We already have the RBI as a regulator for the MFIs registered as the non banking finance companies,” Department of Financial Services Secretary Anjuly Chib Duggal said.

The proposed Bank will also oversee the Rs 3,000 crore Credit Guarantee Fund that the government has approved last week to facilitate the MUDRA scheme. The Fund will provide insurance against default on MUDRA loans to the maximum extent of 50%, thereby helping reduce risk taken by banks and financial institutions.

In a statement on March 1, 2015, a day after the Budget, the finance Ministry had said that the MUDRA Bank will regulate all MFIs.

“This (MUDRA) Bank would be responsible for regulating and refinancing all Micro-finance Institutions (MFI) which are in the business of lending to micro/small business entities engaged in manufacturing, trading and services activities,” the finance Ministry had said.

The MUDRA Bank would primarily be responsible for laying down policy guidelines for micro/small enterprise financing business, registration of MFI entities, regulation of MFI entities, accreditation /rating of MFI entities, the finance Ministry had said.

MUDRA Ltd currently operates as an NBFC registered with the RBI. The government was expected to come out with a legislation to empower MUDRA to regulate MFIs. While the government has last week approved conversion of MUDRA Ltd into MUDRA-SIDBI Bank, it is now clear that the Bank will not regulate MFIs registered with RBI.

Source: The Indian Express