MICROCAPITAL BRIEF: Mr Vijay Mahajan and Mr P N Vasudevan Debate Self-Regulation in Indian Microfinance Industry

Mr Vijay Mahajan, Chairman of BASIX and a Board Member of CGAP (Consultative Group to Assist the Poor), and Mr P N Vasudevan, Managing Director of Equitas Micro Finance, recently published an article entitled, ‘Microfinance in India: Twin Steps towards Self-Regulation.’ In it they discuss the need for a credit bureau and self-regulation among microfinance institutions (MFIs), with the primary purpose of limiting multiple borrowing by members.

They point to the efforts of Alpha Micro Finance Consultants, a network of 30 non-banking financial company (NBFC) MFIs that account for roughly 85 percent of the Indian market, as a step in the right direction. In partnership with the Omidyar Network and the International Finance Corporation (IFC), Alpha intends to help make credit bureau services available to Indian MFIs.

Additionally, the recently established Micro Finance Institutions Network (MFIN), an association of NBFC MFIs, will act as a regulatory body, requiring “member-MFIs to adopt certain processes and be subject to certain limitations that will limit over-lending to a borrower.” MicroCapital reported on MFIN’s ‘Code of Conduct’ here. The authors “believe that these measures will enable the microfinance industry to responsibly serve the microfinance needs of the Indian market; without creating a bubble.”

Mr Daniel Rozas, a microfinance consultant, and Mr Sanjay Sinha, Managing Director of Micro-Credit Ratings International Limited (M-CRIL), argue, however, that self-regulation is insufficient and unsustainable. They suggest that the Reserve Bank of India (RBI), “which already oversees the NBFC MFIs that comprise MFIN, could promulgate general objectives (such as limiting overlending) and delegate to MFIN the formulation and implementation of the regulatory policies required to meet them…. By doing so, it would retain the critically important threat of government action, thus giving lasting teeth to the self-regulatory body. At the same time, it would foster more rapid development, better innovation and ultimately more effective regulations than [MFIN] could develop on its own.”

By: Stefanie Rubin, Research Assistant

About Microfinance Institutions Network (MFIN):

The Microfinance Institutions Network (MFIN) is a trade association of microfinance lenders. Vijay Mahajan, Chairman of MFIN, is also the Chairman of the BASIX Group, an Indian microfinance institution established in 1996. BASIX Group consists of several companies that provide savings and insurance services to poor households in rural India as well as agricultural/business development services and institutional development services. MFIN website: unavailable. BASIX Group website: http://www.basixindia.com/

Additional Resources:

Microfinance Focus:
Microfinance in India: Twin Steps towards Self-Regulation: http://www.microfinancefocus.com/news/2010/01/10/microfinance-in-india-twin-steps-towards-self-regulation-3/

Microfinance Focus: Avoiding a Microfinance Bubble in India: Is Self-Regulation the Answer?: http://www.microfinancefocus.com/news/2010/01/10/avoiding-a-microfinance-bubble-in-india-is-self-regulation-the-answer/

MICROCAPITAL BRIEF: Indian MFIs Agree to Voluntary Credit Code Enforced by Microfinance India Network (MFIN) And Take Equity Stake in Credit Information Bureau: https://www.microcapital.org/microcapital-brief-indian-mfis-agree-to-voluntary-credit-code-enforced-by-microfinance-india-network-mfin-and-take-equity-stake-in-credit-information-bureau/