Impact of Policies and Regulations on the Microfinance Sector

This report analyzes the impact of the regulatory regime on MFIs and their customers in India. It incorporates opinions of a range of clients, MFIs, and banks who lend to the sector directly or indirectly. The report is based on an analysis of nine MFIs and their customers across the states of Assam, Bihar, Karnataka, Madhya Pradesh, and Uttar Pradesh. It studies three major lenders to the microfinance industry to understand the supply side perspective. The report recommends that the regulator stipulate higher emphasis on the quality of credit assessment based on cash flow analysis rather than adherence to minimum moratorium period criterion. The report covers the following sections in detail:

• Trends in microcredit availability pre and post 2010;
• Loan utilization behavior and its implications on regulatory guidelines;
• Impact of regulations on MFI offerings and consumer perceptions;
• Dependence of customers on alternative sources of credit and its challenges;
• Impact of the Andhra Pradesh microfinance crisis on fund mobilization of MFIs;
• Impact of paucity of funds on growth of MFIs;
• Impact of income caps on MFI operations;
• Effectiveness of current fair lending practices;
• Recommendations for future course of action.