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Scaling Up in Microfinance - Issues and Challenges

Summary of proceedings of

SIDBI Sa-Dhan Annual Policy

Conference 2005

T

he Conference aimed at identifying

inculcating savings habits

and

the key impediments in the area of

channelising the money of the poor. He

providing microfinance (mF) services to

emphasised that the regulatory structure

the poor. It focused on the need for a

should address issues pertaining to

legal and regulatory framework, so as to

consumer protection, credit information

facilitate the upscaling of the services

services and setting of interest rates.

rendered by the various organisations to

disadvantaged communities. The

Expressing the condolences of the house

demand for regulation, that too when it

on the damage inflicted by the recent

came from within the sector itself,

tsunami on the livelihoods of the poor,

seemed out of context, especially when

Ela R Bhatt, Chairperson, Sa-Dhan,

the economic rhetoric in post-reforms

observed that mF services like insurance

India is biased towards deregulation.

presumes

an

unprecedented

However, when viewed in the light of

importance in this context. In her keynote

The demand for

regulation becoming a means to the

address, she drew the attention of the

regulation, that

larger goal of enhancing financial

house to the inability of the conventional

too when it came

s e r v i c e s to the poor, the demand

rating agencies in appreciating the

from within the

seemed justified. Specific technical

intricacies of mF. She focused on the legal

sector itself,

sessions dealt with various aspects of the

and regulatory obstacles that currently

seemed out of

sector like governance and prudential

confront the sector. It is not just that only

context,

norms, developmental supervision and,

organisations registered and regulated

especially when

over and above all, the very important

by the Reserve Bank of India (RBI) are

the economic

legal and regulatory framework. Clearly

permitted to accept deposits. What is a

rhetoric in post-

reflective of the growing interest in the

formidable barrier is that many mFIs find

reforms India is

mF sector, development practitioners

the equity requirement of Rs 2 crore

biased towards

from various international organisations,

towards registering in such a form, too

deregulation

tiers of government, ministries, aid

steep. Given that the norms and

a g e n c i e s ,  and  non-government

practices in the mF sector run contrary to

organisations (NGOs) attended the

the conventional banking laws and

Conference.

practices, it would be in the fitness of

things to have an independent

Inaugural Session

Microfinance  Development  and

In his introductory address, Mathew Titus,

Regulatory Authority (MFDRA), which

Executive Director, Sa-Dhan, drawing on

would facilitate and, at the same time,

the international experience, underlined

enable  the  sector  to  perform

the importance of a regulatory framework

developmental and financial tasks.

for the sustainable growth of the sector.

Setting the tone of the seminar, he

reiterated the importance of designing

a regulatory regime that would, through

setting the right incentives and reducing

distortions, enable the sector to perform

its developmental roles in a better way.

In

his

welcome

address,

N

Balasubramanian, CMD, SIDBI, observed

that the regulatory regime, while insisting

on prudential norms for deposit-taking

microfinance institutions (mFIs), should not

stifle the innovative and flexible mode

in which the sector currently operates. In

his special address, V K Chopra, CMD,

Corporation Bank, remarked that, in the

situation of mFIs not being allowed to

take deposits from the poor, a strategic

tie-up with the commercial banks in the

region would go a long way in