New Delhi: The finance ministry has opposed capping interest rates for small loans under the Micro Finance Bill and is opposed to the views of the Left parties and certain members of the Standing Committee of Parliament.

The Micro Finance Bill introduced in Parliament, is currently under consideration of the Standing Committee.

According to the source, the finance ministry had brought to the notice of the Standing Committee that at a time when money lenders and commission agents were charging as much as 50-300 per cent interest, there should be any limit on interest rate for organised players like banks and financial institutions as this would discourage them to lend to micro-finance institutions.

The FinMin said that more competition, the interest rate would come down, now in the range of 24-30 per cent.

According to estimates, there are over 800 micro-finance institutions operating in India in various forms — trusts, societies, cooperatives and non-banking finance companies.
The Bill, which was introduced by Finance Minister P Chidambaram, seeks to regulate small micro-credit institutions through the National Bank for Agriculture and Rural Development (Nabard), requiring them to meet stringent accounting standards.

However, the Bill does not contain any provision regarding ceiling on interest rates that could be charged from the borrowers.

Another official source said due to differences among the members of the Standing Committee and opposition from the Left parties, the Bill could not get Parliamentary approval during the Budget session.