The Reserve Bank on Tuesday said it has decided to accord recognition to industry associations as self regulatory organisations of non-banking financial companies that are engaged in micro finance (NBFC-MFIs).
The central bank said this was done based on the recommendations made by a sub-committee under the chairmanship of Y H Malegam which was formed to study the issues and concerns in the micro-finance sector.
“To give effect to recommendation of sub-committee...To ensure effective monitoring of the functioning of NBFC-MFIs, their compliance with the regulations and code of conduct and in the best interest of the customers of the NBFC-MFIs, RBI has decided to accord recognition to industry associations as SRO of NBFC-MFIs,” RBI said in a release.
The recognition to the SRO for the sector assumes significance in the wake of SKS Microfinance crisis in Andhra Pradesh in 2010 that had resulted in spate of suicides by borrowers due to coercive recovery practices by the lender. RBI further said that the membership of NBFC-MFIs in the industry association/SRO will be seen by the trade, borrowers and lenders as a mark of confidence and removal from membership will be seen as having an adverse impact on the reputation of such removed NBFC-MFIs.