RBI raises concerns over dual microfinance regulation in Assam

The Reserve Bank of India has expressed strong reservations about Assam’s bid to regulate microfinance activities by way of a legislation, because the Act, promulgated on January 27, leads to dual regulation of a key component of the credit market.

During the first meeting of the newly formed Assam government and microfinance stakeholders in Guwahati on Saturday, RBI officials are said to have argued that banks and non-bank microlenders, which are regulated by it and operate within a laid down framework, should not come under the purview of the state-level Act.

This was, in a way, a reiteration of the concerns raised by top executives at Mint Street a few months ago. The dual regulatory structure, a norm in the cooperative banking set-up, is often criticized for their ill financial health amid gaps in regulation.

The Assam Microfinance Institutions (Regulation of Moneylending) Act, 2020, requires microfinance lenders to seek separate registrations for operating in a particular village or town. This, according to the Act, is “to protect and relieve the economically vulnerable groups and individuals from the undue hardship of usurious interest rates and coercive means of recovery”.

Without fresh area-wise registrations, no lender can offer fresh loans and recover existing dues. The state government had said earlier that it would frame guidelines to follow the provisions of the Act.

“There are uncertainties all around which got aggravated with the election promises of micro loans waiver. If these are not addressed, lenders would be forced to cut loan exposure in the state,” one person who attended the meeting said.

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Officials from the state government’s institutional finance department virtually met with institutional stakeholders, including representatives from the Indian Banks’ Association; and the Microfinance Institutions Network (MFIN) and Sa-Dhan — associations of microlending firms.

Officials from

, which controls about half of Assam’s Rs 11,500 crore microfinance market, were also present.

The size of the market has shrunk from Rs 12,000 crore last year.

The state microfinance Act has capped the total loan to a single borrower at Rs 1.25 lakh, as per RBI norms. It has further capped indebtedness for permanent tea garden workers at Rs 30,000 for borrowers with a single source of income and at Rs 50,000 for borrowers with multiple sources of income.

It also barred fresh lending to all economically vulnerable sections including casual workers of tea gardens and people who do not earn nationally prescribed minimum wages.

Seven out of 33 districts in Assam are among 34 in the country that are considered over-indebted because these have more than 10% microfinance borrowers with over Rs 1 lakh loans outstanding.

Assam also leads in the delinquency chart among all major states, with one-fifth of the loans remaining overdue for 90 days or more as of December 31, last year.



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