The government has already drafted the Micro Finance Sector (Development and Regulation) Bill, 2011. The Bill seeks to make it mandatory for all micro finance institutions (MFIs) to be registered with the Reserve Bank of India (RBI). It also entrusts the task of regulating the sector with the RBI

New Delhi: Pitching for early enactment of the Micro Finance Bill, HSBC India chief Naina Lal Kidwai has said the MFI sector has huge potential but needs regulations for growth, reports PTI.

“The MFI sector has a lot of potential. But it needs to have a defined set of rules to function in a proper way... The Micro Finance Bill needs to get cleared at the earliest to achieve this,” Ms Kidwai told PTI.

The government has already drafted the Micro Finance Sector (Development and Regulation) Bill, 2011. The Bill seeks to make it mandatory for all micro finance institutions (MFIs) to be registered with the Reserve Bank of India (RBI). It also entrusts the task of regulating the sector with the RBI.

She said, “The sector should be developed but the interest rates should be checked... it should be seen that there are not many loans given to a single person.”

Micro finance—the practice of giving small loans to poor people—have come under intense scrutiny over allegations of high interest rates and coercive recovery tactics.

Micro-credit is the lending small amount of money, usually less than Rs10,000, to entrepreneurs to start or expand small businesses.

These institutions source their funds from banks at an interest cost of 12%-13% and in turn lend at much higher cost of nearly 30%.

The MFI industry is going through a rough weather after the Andhra Pradesh government introduced an Act last year to regulate their activities following a string of farmer suicide in the state.

The Andhra Pradesh Microfinance Institutions (Regulation of Moneylending) Act, 2010, requires MFIs to declare interest rates upfront and disclose all details relating to their borrowers.