Scribd
Upload
491 views2 pages

Micro Finance Unit 5

The document summarizes the legal and regulatory framework for microfinance institutions in India. There are currently no significant regulations for most MFIs except those registered as non-banking financial companies with the Reserve Bank of India. The document outlines the various acts that govern different types of financial institutions, including cooperative societies, trusts, companies, and NBFCs. It also describes the proposed Microfinance Institutions (Development and Regulation) Bill of 2012, which aims to establish a regulatory body and bring all MFIs under the Reserve Bank of India's oversight.

Uploaded by

jaharlal Marathi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
491 views2 pages

Micro Finance Unit 5

The document summarizes the legal and regulatory framework for microfinance institutions in India. There are currently no significant regulations for most MFIs except those registered as non-banking financial companies with the Reserve Bank of India. The document outlines the various acts that govern different types of financial institutions, including cooperative societies, trusts, companies, and NBFCs. It also describes the proposed Microfinance Institutions (Development and Regulation) Bill of 2012, which aims to establish a regulatory body and bring all MFIs under the Reserve Bank of India's oversight.

Uploaded by

jaharlal Marathi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

LEGAL & REGULATORY FRAMEWORK OF MICRO FINANCE:-

The legal and regulatory framework of micro finance institutions in India are as follows:-
1) Presently there are no significant regulatory mechanism to regulate MFIs in India except those
who are registered under RBI as NBFCs.
2) The management and governance of MFIs are generally weak because there is no compulsion to
adopt widely accepted systems, procedures and standards.
3) At present, most Indian MFIs and NGOs are not treated as a part of the mainstream financial
sector.
4) The RBI Act lays out the regulatory framework for the NBFCs. All NBFCs are currently regulated
by RBI Act under Chapter III-B, III-C, and Chapter V.
5) The Banking Regulation Act covers commercial banks including local area banks.
6) The Regional Rural Bank Act covers RRBs and
7) The Cooperative Act covers cooperative societies in India.

NEED FOR REGULATION OF MF AND MFIs:-


Following are the needs:-
1) To protects the interests of small savers and ensuring proper terms of credit.
2) To establish financial discipline and having a proper reporting and supervision system.
3) To ensure financial soundness of an MFIs and reducing their chances of failures.
4) To reinforce the trust of public in MFIs.
5) To protect borrowers by preventing profit maximization at the clients expense.
6) To helps the client by regulation of the MFIs from monopolistic lending practices.
7) To ensure that micro finance institutions are run prudently and chances of frauds should be
reduced.
8) Currently in India, NBFC-MFIs are regulated by the RBI.

CURRENT LEGAL STRUCTURE OF MFIs in India:-


It includes the following:-
1) Non govt organisations engaged in micro finance including Societies and Trusts.
2) Co-operative registered under MSCA Act, 2002 or Mutually Aided Cooperative Societies Acts.
3) Section 25 Companies (not for profit).
4) Profit NBFCs.
5) NBFC-MFIs.

VARIOUS LAWS GOVERNING MICRO FINANCE ACTIVITIES IN INDIA:-


It includes the following:-
1) The Cooperative Societies Act:-
Co-operative banks came into existence with the enactment of the Cooperative Societies Act 1904. This
Act provides for the formation of Cooperative credit societies.
Subsequently in 1912, a new act was passed for the establishment of cooperative central banks.
SEWA Bank is registered as a cooperative society under this Act by the regulation from RBI.

2) Societies Registration Act, 1860:-


Under this Act the registered society need to mention micro finance clearly as an activity and must
mentioned in their Memorandum of Association as charity work one of their objectives. This Act amends
from time to time.
The application for registration of society under this Act should be made to the assistant registrar
having jurisdiction over the region in which the society is to be registered.
3) Indian Trusts Act,1882:-
Micro finance institutions are registered under this Act either as public charitable trusts or private. To
constitute a trust under this Act following essentials should be followed:-
a) There must be 3 parties namely the author, trustees and beneficiary.
b) Declaration of a trust.
c) Certainty of the subject matter of a trust.
d) Certainty of objects of the trust.
Under this Act, a trust mat be created by any individual or institutions competent to contract.

4) Reserve Bank of India Act,1934:-


This Act was passed in the year 1934. It contains provisions for the establishment and operations of
NBFCs under chapter III-B , Section 45-1.
Every NBFCs shall make an application to the RBI for its registration.

THE MICRO FINANCE INSTITUTIONS (DEVELOPMENT AND REGULATION) BILL, 2012:-


It includes the following:-
1) This bill was introduced for the development and regulation of micro finance institutions for the
purpose of facilitating access to credit, thrift and other micro finance services to the low income
people.
2) The Bill proposes the setting up of a microfinance development council with members from
various central government ministries, including finance and rural development, RBI, the Small
Industries Development Bank of India, NABARD, the National Housing Bank and another four
independent members.
3) As per this bill, all MFIs will have to register themselves with the Reserve Bank of India (RBI). The
central bank can specify lending rates, the recovery methods to be followed, the processing fees,
the tenure and ceiling of the loan.
4) For greater involvement of the states, the Bill also proposes the setting up of state development
councils with representatives from state governments.
5) Every MFI shall create a reserve fund and transfer therein a sum as specified by the RBI from its
net profit or surplus.
6) At the close of each financial year, every MFI shall prepare a balance sheet, profit and Loss
account as on the last working day of the financial year.
7) The RBI shall constitute a fund to be called Micro Finance Development Fund and it includes all
the grants, donations, income from investments etc.
8) If any provision of this Act is contravened the person guilty of such contravention shall be
punishable with 2 years imprisonment or fine upto rupees 5 lakhs.

OBJECTIVES OF BANKING REGULATION ACT 1949:-


Following are the Objectives:-
a) To reduce unhealthy competition in the banking sector.
b) To safeguard the rights of shareholders and the public.
c) To impose restrictions on Indian investors.
d) To take necessary steps to strengthen the banking sector of the country.
e) To ensure new branches are licensed.
f) To pass necessary rules and regulations regarding minimum capital.

You might also like