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Challenges before Registration ofInterest-Free Microfinance Society

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, by MOHAMMAD NAUSHAD KHAN

Hindrance generally faced during the process of registration of interest-free microfinance society, its viability, legal hassles, prospects and challenges was elucidated by Tahmina Laskar, Deputy Manager, Sahulat Microfinance Society at a programme organised by Forum for Discussion on Economic Issues, a joint forum of Sahulat and Radiance Viewsweekly in the national capital on 21 July.  

An organisation, institution, NGO or a society is bound to face some or the other hurdles during the process of registration because of corruption, political and bureaucratic interference or at times even religious discrimination. Over the years microfinance activities have been governed through Societies Registration Act, 1860 or the Indian Trusts Act, 1882 or the Companies Act. In order to start a microfinance society, the initial support base is in the form of societies and trusts. But that is not enough for operational functioning of the microfinance societies. Under the given statutory provisions, microfinance institutions registered under Societies/Trusts Act cannot mobilise deposits.

During presentation, Tahmina explained in detail the comparative advantage of cooperatives like Societies, Trusts, Section 25 Companies, NBFC and Cooperative Societies, their process of registration, minimum start-up capital, their regulatory requirements, deposit mobilisation and scaling up of operations. For example, the Reserve Bank of India is reluctant to offer registration to new NBFCs because of the problem faced to raise the required capital of Rs 2 crore. For some, the problem lies during registration, while others are likely to face trouble in capitalising their start-up capital but the biggest concern lies in mobilising funds and scaling up of operations.                            

However, Multi-State Cooperative Act, 2002 provides a better opportunity for registration, fund management, sharing of profit and loss, investment of funds, loaning and borrowing activities and risk management. The significant part of this act is that the act neither restricts the operation of interest-free cooperative society nor does it put hurdles in the formation of a cooperative society. Now under the liberal Acts which are 10 in numbers are applicable in (Andhra Pradesh, Bihar, Chhattisgarh, Delhi, Jammu & Kashmir, Jharkhand, Karnataka, Madhya Pradesh, Odisha and Uttaranchal); they do not contain any obligatory provision of payment of interest either on deposit mobilised from members or on loan given to borrowers.

The Supreme Court in one of its judgment has upheld the autonomous character and democratic member control in the cooperatives. During the presentation, a particular case of Unity Cooperative Credit Society Ltd was also discussed. During registration process the Central Registrar’s office raised objection to the concept of interest-free. So therefore when the next time the proposal was filed it was filed by adding a preamble in the by-laws which later came up with the definition of interest–free microfinance through cooperatives. In this manner, Sahulat Microfinance grew to the level of defining an abstract idea of interest-free microfinance.

Towards the end, K.A. Najmi, Supreme Court lawyer, said that the success and failure of an interest-free microfinance society or any such organisation and institution will depend on monitoring and supervision. He also emphasised the need to adopt some tactical changes in names and approach to overcome religious discrimination before applying for registration.



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