The Micro Financial Sector (Development and Regulation) Bill, 2007: Legislative Brief

While the Bill promotes the activities of MFOs, there are differing opinions on the cost efficiency of the MFO model. �� NABARD is designated as the regulator of the micro financial sector. However, its dual role as a key participant in the sector and the regulator could lead to conflict of interest. �� Banks and deposit taking Non-Banking Financial Companies (NBFCs) have to comply with Reserve Bank of India’s (RBI) prudential norms designed to safeguard depositors’ funds. While the Bill enables NABARD to prescribe norms for MFOs, it specifies some norms which are less stringent than for banks and NBFCs. �� Unlike banks regulated by RBI, the Bill does not exempt registered MFOs from the Usurious Loans Act, 1918 or state laws which cap interest rates. �� The Bill defines “micro financial services” to include insurance and pension services without specifying to whom such services are to be provided. This implies that every insurance and pension company would be regulated by NABARD.