Prime Minister’s Economic Advisory Council Chairman C Rangarajan suggested micro finance institutions (MFIs) to charge interest rates according to the repayment ability of borrowers.
He remarked that fixing the interest rate independent of the repaying capacity of the borrower is asking for disaster. According to him, that was where things went wrong.
He said this during a programme in Centre for Economic and Social Studies. He was responding to a specific query on capping interest rates charged by micro finance institutions (MFIs). The Micro Finance Institutions (Development and Regulation) Bill, 2012 is currently being scrutinised by a Parliamentary Standing Committee.
It seeks to provide the RBI with powers to regulate the micro finance industry and fix interest rates ceiling on loans to be provided by lender.
The Bill was drafted in the backdrop of problems faced by borrowers of MFIs in Andhra Pradesh and other states. In the wake of a spate of suicides by borrowers allegedly due to the coercive recovery practices by the MFI agents in Andhra Pradesh, Andhra Pradesh had issued an Ordinance made that into an Act.
Microfinance Institutions Network (MFIN), a self regulatory body of MFIs, has been requesting the Reserve Bank to fix the margin cap for individual loan to borrowers at 12 per cent, instead of 10-12 per cent earlier.
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