Emerging Scenarios for Microfinance Regulation in India: Some Observations from the Field

This document captures the current debate (as on October 2003) about microfinance regulation in India, as expressed by leading microfinance experts in the country. It provides a snapshot view of key stakeholders in the debate and also identifies possible future steps for microfinance regulation.

The paper:

• Recalls recent initiatives and legal amendments in the field of microfinance regulation;
• Outlines three different scenarios that reflect key issues raised during discussions:
  • Scenario 1 - suggests a focus on the existing formal banking infrastructure along the lines of the SHG-bank linkage model with little or no need for regulatory adjustments,
  • Scenario 2 - delineates the existing role of the MFI sector and views current constraints for different types of MFIs. It also lists possible regulatory changes, for a level playing field,
  • Scenario 3 - acknowledges a role for the microfinance sector alongside linkage banking. It also analyzes the effects of establishing a separate legal framework for microfinance.
• Spells out strengths and weaknesses of these scenarios, and the status of, and possible need for, revising regulations under each scenario.

Finally, by looking at relevant experiences in other countries, the paper tries to reflect upon the debate in India against the backdrop of the international discussion on microfinance regulation.