RBI TELLS STATES NOT TO REGULATE INTEREST RATES CHARGED BY MFIs

The Reserve Bank of India (RBI) has told some of the State Governments to refrain from regulating interest rates charged by Micro-Finance Institutions (MFIs). The regulator feels that the various money lending legislations, which put a cap on the interest rate charged by an entity (not banks), should not apply to MFIs. This comes on the back of a recent incident in Andhra Pradesh where the State Government pulled up local MFIs for competing with the state’s lending programme . The RBI is understood to be of the view that the provisions of the Money Lending Act should not apply to MFIs operating in the form of Non-Banking Financial Companies (NBFCs) and companies which do not declare dividend and are registered under Section 25 of the Companies Act. However, state legislations may continue to govern MFIs operating as trusts or NGOs.