Sa-Dhan Newsletter Volume 3 Issue 2

Microfinance Regulation

The rural financial sector in India is still not an integrated one

finance interventions in India on the borrower sense of the

and weaning the borrowers away from the informal sources

self has been remarkable and this changed view of self is

of credit would require a major expansion drive for micro

bound to prepare the way for other significant socio-economic

finance institutions in rural areas. Moreover, poor resource

changes. Changes in the local structure in which lives of the

endowment features of the borrowers have tradionally made

recipients have been embedded have been quite palpable.

institutional credit in India skewed in favour of rural rich.

Support mechanism anchord in the dynamics experience and

Banks and other micro finance providers should realize only

realities of the region have significantly impacted quality of

to their advantage that micro finance offers enough scope for

life in the villages.

this much needed credit broad basing. Indeed, absolute

financial volumes do not properly reflect the social significance

We on our part are therefore moving towards a systems

of informal credit especially in rural areas as the poor resort

prospective for providing effective policy support not only

to informal lenders frequently. It is in this context that micro

because a number of different institutions viz. banks MFI,

finance assumes even more criticality as such linkage afford

NGOs and SHGs are involved but also because the institutions

a positive institutional alternative, cut into the informal sector

have very different institutional goals. Such structured

hold on rural market and make the latter accept interest rate

observation will form part of our research control identifying

etc. benchmarking of formal credit.

coherent and complementary alternative micro/macro policy

options for a transitional pathway to good governance with

Our recent studies on the interventions made through intensive

maximum possible transparency being a natural corollary and

interaction with the member borrowers have brought into

poverty eradication not on the basis of a prior theorizing but

focus the various dynamics of economic and social strategies,

based on lessons from the ground and macro best practices

intra household gender relations and a successful credit

would now form the crux of our response initiatives.

delivery system affording clients greater access to services.

These studies also demonstrate the importance of good policy

With this in view, we are planning a series of initiatives in

as an essential pre requisite for good practice. Recent policy

the coming months for putting in place a more vibrant micro

trends in India happily are pointers to a healthy attitudinal

finance dispensation environment in the country where

shift and an unmistakable commitment of the central bank

complimentary and competitive models of micro finance

towards the financial systems development approach to micro

delivery would be encouraged to co -exist. While the Rural

finance. Not only does a proactive policy environment allows

Planning and Credit Department in the Reserve Bank will act

for formulation of policy responses necessary for creation of

as the Focal Point for deliberation/interaction on all micro

an enabling environment for suitable growth of micro finance

finance related policy issues, the real success of our micro

in the country, it also seeks to strategise intervention initiatives

finance sector reforms will however depend primarily on the

for mainstreaming and upscaling micro finance provision and

Organisational effectiveness of the providers for which initiative

extending the outreach of micro finance providers.

will have to come from the providers themselves. I am a sure

as important conduit in the micro finance delivery system you

An extremely important aspect of these policy resources on

will make the best use of this Forum and bring your

micro finance concerns the empowerment effect. Broader

experience and knowledge to bear upon the above mentioned

indicator of poverty such as vulnerability, physical and social

issues.

isolation powerlessness insecurity and lack of self respect

have always been major roadblocks. The impact of micro

I wish this forum all success.

Sa-Dhan' Annual Policy Conference: Deliberations on the group

reports submitted to the " Empowered Committee"

S

a-Dhan Annual Policy Conference on "Enhancing

to the unorganized sector. This led to the formation of seven

groups on various components, which could influence the

Financial Flows to the Poor: A Way Forward" was held

resource flow to the sector. Each of the groups was asked

at the India Habitat Centre, in New Delhi on the 4th September

to come up with a report. Six groups have submitted their

2002. The Conference brought togethers on a common

report to the "Empowered Committee" so far.

platform, over 100 participants that included senior

practitioners (co-operatives, NGOs, MFIs), donors, policy

In the Sa-Dhan Annual Policy Conference all participants

makers (MoF, PMO), regulators (RBI), bankers and priority

[senior practitioners (co-operatives, NGOs, MFIs), donors,

sector heads to deliberate on issues relating to resource flows

policy makers (MoF, PMO), regulators (RBI), bankers and

to the sector. Mr. Vepa Kamesam, Deputy Governor, RBI and

priority sector heads] deliberated on the summary of the six

Mr. D. C. Gupta, Secretary, Banking & Insurance also

sub group reports, which were submitted to the "Empowered

addressed the gathering.

Committee" on "Financial Flows to the Unorganized Sector",

and came out with their short term as well as long term

The above event was held in the backdrop of the establishment

recommendations. These recommendations would form a

of a forum for policy dialogue, by the Prime Minister's Office-

base for further dialogue with the policy makers.

"Empowered Committee" on Micro Finance, headed by the

Secretary, Banking & Insurance, Ministry of Finance, to

For further details please log on to our Website

discuss ways for increasing the flow of institutional finance

www.sa-dhan.org

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