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in Bangladesh had made a note-worthy statement.He mentioned that 'for-profit' micro finance institutionsare no different from traditional money-lending activityand should be subject to law relating to money-lendingor treated with other financial intermediary performingsimilar functions.Section-VIMalegam Committee - its constitution andrecommendationsReserve Bank of India, on October 15, 2010 constituteda sub-committee of its Central Board to study the issuesand concerns in the microfinance sector in India, in thewake of the Andhra Pradesh Ordinance and micro financecrisis surfaced in Andhra Pradesh. The Committee, interalia, included noted industrialist Shri. Kumar MangalamBirla, Deputy Governor Dr. K. C. Chakrabarty, Smt. ShashiRajagopalan, an expert on microfinance sector.The Terms of Reference of the Committee, inter alia,were to review, examine and recommend :the definition of 'microfinance' and 'Micro FinanceInstitutions' for the purpose of regulation.●the practice of MFIs in regard to interest rates, lendingand recovery practices .●the objectives and scope of regulation of NBFCsundertaking microfinance and the regulatoryframework.●the applicability of money lending legislation of theStates and other relevant laws to NBFCs / MFIs.●the role of associations and bodies of MFIs could playin enhancing transparency and disclosure.●the conditions under which loans to MFIs can beclassified as priority sector lending.●The Malegam Committee submitted its Report, on January19, 2011, has made far-reaching recommendations, whichwould shape the policy framework of the microfinancesector in India.The significant recommendations are encapsulatedbelow :1. An NBFC classified as NBFC-MFI should satisfy thefollowing conditions :special feature2. Not less than 90 per cent of its assets (other than cashand bank balances and money market instruments)are in the nature of “qualifying assets”. The aggregateamount of loan given for income generation purpose isnot less than 75 per cent of the total loans extended bythe MFIs.3. There should be a margin cap of 10 per cent in respectof MFIs which have an outstanding loan portfolio of`100 crore and a margin cap of 12 per cent in respectof MFIs with an loan outstanding not exceeding of`100 crore, at the beginning of the year. Further, thereshould be a cap of 24 per cent on individual loans.4. To achieve transparency in interest rates, there shouldbe a standard loan agreement. The effective rateof interest charged by MFIs should be prominentlydisplayed in all of its offices and its web-site. TheMFI should provide a loan card to its borrowershowing effective rate of interest, loans and conditionsattached to the loan, acknowledgement of the MFI ofthe payments received.5. To tide over multiple lending by MFIs, over-borrowingby the individuals, the Committee recommended thatMFIs should lend to an individual only as a memberof a JLG and should ensure that the borrower is not amember of another JLG / SHG.6. To provide a data base for capturing all outstandingloans to individual borrowers as well as thecomposition of SHG and JLGs, the Committeerecommended setting up of one or more creditinformation bureaus and all MFIs be required tobecome member of such bureau.7. To put a check on coercive method of recovery,the Committee recommended that field staff ofMFIs should not be allowed to make recovery atthe residence or work place of the borrower andall recoveries be made at the Group level at adesignated central place.8. As more than 75 per cent of the funds of MFI are frombanking system, it is necessary that there is adequatesafeguards for maintaining solvency. The Committeehas, therefore, recommended that an MFI shouldrequire to maintain aggregate provision which shallThe Journal of Indian Institute of Banking & Finance October - December 2011 57