CHENNAI: The solution to issues such as excess lending, multiple borrowing and staff poaching which are worrying the microfinance industry, may come in the form of a code of conduct, according to a top official of the National Bank for Agriculture and Rural Development (NABARD).
YSP Thorat, chairman, NABARD, said answer to problems such as multiple borrowing and repayment issues are to develop a code of conduct for micro-finance institutions (MFIs).
"NABARDsitting with central bank should evolve a set of standards for the sector to obey. Only if there is no adherence to standards, we can bring in regulation," Mr Thorat said.
"Regulation only gives an illusion of comfort. It should be packed by supervision. The supervision capacity should be clear before we get into the regulatory mode," he added.
Dr Thorat further said such a regulation should not be spearheaded by NABARD, but by the MFIs themselves. "There should be a self-regulated framework for MFIs," he said. Dr Thorat was in Chennai to attend a seminar organised by IFMR, about the issues and policies concerning India's financial institutions.
The NABARDchairman also called for greater transparency while setting interest rates. “If the lending rates are not aligned with the market rates, then the company may not be allowed to continue in the market. These issues have been worrying us over the last few months,” he said.
Thorat also said that though the Micro Financial Sector (Development and Regulation) Bill, 2007, places Nabard as the regulator for the microfinance sector, his role would be restricted to the NGOs, Societies and Trusts.