NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, March 27, 2015

Microfinance institutions (MFIs) are worried about the government’s decision to set up the Micro Units Development and Refinance Agency, or Mudra Bank, to regulate them as there could be a conflict of interest. They want the Reserve Bank of India ( RBI) to continue as their regulator.

MFIs suggested this to the finance ministry at a closed-door meeting in New Delhi on Tuesday amid concerns that a new regulator may weaken an industry that has just emerged from turmoil. The prime minister’s Office has said Narendra Modi will launch the Mudra Bank on April 8.

Finance minister Arun Jaitley had announced the bank in his Budget to regulate and refinance MFIs. It will have a corpus of Rs 20,000 crore and a credit guarantee corpus of Rs 3,000 crore. “The sector is very happy to welcome Mudra Bank (as far as) refinance is concerned. Registration is fine as well (but) having it as a regulator and refinancier could lead to a potential conflict of in terest. This is the feeling of the industry as a whole,” said Ratna Vishwanathan, deputy CEO of Micro Finance Institutions Network (MFIN), a self-regulatory organisation.