Sa-Dhan Newsletter Volume 3 Issue 2

Microfinance Regulation

in this way provide equity support to upcoming MFIs.

LESSONS FOR THE INDIAN MICROFINANCE

SECTOR

A major outcome of this in a country like India could be that

at least there would be a consolidation of the sector, and

First and primary would be the lesson for the policy makers

information will be available as to who all are the operators

who recognised the importance of microfinance and the place

in the market. There are government schemes, the co-

it has in poverty alleviation, and thus accorded an important

operatives, the banks, the various departments, financial

position to it in the financial sector. They set out to define

institutions, a number of private operators like moneylenders,

microfinance and set up a specialised institution to oversee

chit funds, NBFCs, NGOs, etc who are involved in making

its practice.

small loans mostly to the poor. Bringing all these lenders

under one regime would by itself do a lot to rationalise the

Second was the way microfinance was defined. The SARB

sector.

defined every transaction below an agreed  amount as

microfinance. Now irrespective of who undertook this

Fifth, the NLR is a good idea, but very complicated to

transaction it fell under the purview of microfinance and

implement, because of the sheer size of the market. But if

therefore would be reported thus. There is no interest

something of this nature could be done may be at the State

regulation. There is only a demand for transparency. This is

level will help maintain a minimum quality of lending.

a qualitatively different treatment of microfinance than it is

done here in India. The so-called respectability that is accorded

Sixth, a major lesson for the government in India will be not

to microfinance of any kind has enabled the small operators

to interfere in lending operations by introducing subsidies.

to come out and declare their business.

The reaction of the SA government to address the unmet

credit needs of the poor was not to introduce subsidised

This has encouraged a lot of big players to get into microfinance

loans, but to provide respectability to any kind of lending to

by even setting up collaborative ventures with small money

poor and regulate it closely. The overall approach of the

lending institutions. This might be a mechanism that can be

government in SA has been to mainstream the microfinance

thought of in India too. The larger financial institutions could

sector and allow equal access and opportunity to everyone.

Shri Manmohan Singh (Former Union Minister) & Ela R. Bhatt (Chairperson, Sa-Dhan)

releasing the Book "Beyond Micro-Credit : Putting Development Back into Micro-Finance"

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