Regulating the Growing Commercialisation of Microfinance Institutions inIndian

Regulating the Growing Commercialisation of Microfinance Institutions inIndian

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Volume 5 Issue 1 ()

The Forest Rights Act, 2006: Settling Land, Unsettling Conservationists Microfinance Institutions (‘MFIs’) have always been considered as one of the frontline institutions for the propagation of financial services to the poor. Over the years, however, Indian MFIs have not seen the kind of success as their counterparts in Latin America, Europe and Bangladesh. Blind adoption of international models and subsequent commercialization by offering IPOs has not seen desired results. The critics say that MFIs, rather than becoming an alternate have replaced usurious moneylenders. Issues that have shown serious damage in the institutional structure are exorbitant interest rates, loan-sharking and excessive board room battles. Furthermore, legally it is very difficult to regulate the sector because there is a multitude of ways to incorporate such an institution. With each possible way of incorporation comes a new set of rules for its regulation. The question to be answered herein is commercialization of the MFIs the way forward for the sector. In this context, we look at the extant legal regime that governs the sector and the limitations that exist in it for regulating the commercial sector. We propose that such measures should be deterred in India at the moment. Due to the controversies that have plagued the market, especially in Andhra Pradesh, there have been a lot of calls for an independent regulator in the market. It is at this juncture that the New Microfinance regime has been introduced with the new Microfinance Bill and the Reserve Bank introducing a completely new notification setup. We, however, propose that a two-way model for a regulator is the way forward.

Cite as: Aditya Alok & Nihal Joseph, Regulating the Growing Commercialisation of Microfinance Institutions inIndian, 5 NUJS L. Rev. 65 (2012)

Disclaimer: All articles of Issue 5 (1) of the NUJS Law Review will be released online once the print copy is out