GOVERNMENT OF INDIA
Ministry of Finance
DEPARTMENT OF FINANCIAL SERVICES

RAJYA SABHA
UNSTARRED QUESTION NO. 1449
TO BE ANSWERED ON THE 23^rd NOVEMBER, 2010/ 2^nd AGRAHAYANA, 1932 (SAKA)
Interest Rates Charged by MFIs

1449. SHRI RAJEEV CHANDRASEKHAR:
Will the Minister of FINANCE be pleased to state:

(a)    Whether Government is aware of the recent controversy in SKS Microfinance relating to the management changes soon after a IPO;

(b)   If so, the details thereof;

(c)    Whether it is a fact that Microfinance institutions are charging very high interest rates which may turn them into another formal money lending industry;

(d)   If so, the details thereof; and

(e)   The regulatory measures Government proposes to take in this regard to prevent predating on the poor underprivileged by the Microfinance Institutions?

ANSWER
THE MINISTER OF STATE IN THE MINISTRY OF FINANCE
(SHRI NAMO NARAIN MEENA)

(a)    & (b): The Small Industrial Development Bank of India (SIDBI) has reported that SKS Microfinance Ltd. (SKS), the only Micro Finance Institution (MFI) in India to be listed on the Bombay Stock Exchange/ National Stock Exchange (BSE/ NSE), had gone for an Initial Public Offering (IPO) in August 2010. Subsequent to the IPO, the Board of SKS had taken a decision to terminate the services of Shri Suresh Gurumai, CEO.

(c ) & (e): While Reserve Bank of India (RBI) does not regulate the interest rates charged by Micro Finance Institutions, it has issued Instructions on a Fair Practice Code to be adhered to by all Non- Banking Financial Companies (NBFCs) in terms of which the NBFCs should not charge exorbitant rates of interest and resort to undue harassment viz. , persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans, etc. The Boards of of NBFCs were advised to lay out appropriate principles and procedures and determine interest rates, processing and other charges.

The Government of India had in September, 2010 written to all Chief Executive Public Sector Banks advising them to ensure that the rates of interest charged by the MFIs to the eventual beneficiaries are reasonable. The Banks were also advised to ensure that MFIs do not resort Officers of to ever greening of the loans.

The Reserve Bank of India has since constituted a Sub- Committee of the Central Board of Directors to look into various issues in this sector, including ways and means of making interest rates charged by them reasonable. Shri Y H Malegam, a senior member on the Central Board of Directors of the Reserve Bank of India will chair the Sub- Committee. The Sub- Committee will submit its report in three months. The Department of Financial Services proposes to introduce the Micro Finance (Development & Regulation) Bill, 2010 after taking into account the views of RBI and the Malegam Committee recommendations.